Everything you need to know about Centralized Cryptocurrency Exchange
One of the important types of exchange that is driving the market is the Centralized Cryptocurrency Exchange. It is an online platform for buying and selling cryptocurrencies at market rates. It offers an exchange of fiat with crypto and vice-versa. All the users’ funds and trading activities will be handled by an authority or a third party. This benefits the customers as they need not keep continuous watch over their money. By giving full access to their account to the exchange, the pressure is off the customers’ heads.
Difference between Centralized and Decentralized Exchanges
With the blockchain technology that powers cryptocurrencies becoming more distributed in nature, there has been an increase in the emergence of decentralized exchanges. The primary difference between decentralized and centralized exchanges is the absence of middlemen. All transactions are executed through an in-built smart contracts system. It works in a trustless environment based on peer- to- peer communication.
Advantages of Centralized Exchanges
- Most of the centralized exchanges have high trading volume due to the continuous inflow of investor’s funds. This results in lesser chances of volatility in prices. It also prevents any attempts at market manipulation.
- To manage uncertainty in the market, most exchanges offer the facility to barter cryptocurrencies with fiat currencies and vice-versa. This helps in efficient fund management.
- Not all centralized exchanges are 100% safe. Though incidents of hacking have taken place in the past, customers have been repaid fully by the exchanges. Since centralized exchanges operate on institutional trust, it can be guarded against any sort of misuse. There are many cases of users locking themselves out of their own accounts in decentralized exchanges indicating its vulnerability.
- Frauds are prevented through a robust verification system for users. Basic verification involves checking the users’ passport or any government-issued ID and enabling two-factor authentication in their accounts.
- Risk is significantly reduced as storage of assets is managed safely by a trusted middleman.
- Chances of volatility are less as prices of cryptocurrencies are more or less stable. It also has a high throughput.
- Centralized exchanges can also be scaled up to add more users according to the scope of operations
- Centralized exchanges are also offering insurance to users to protect themselves against security breaches.
- It is beneficial for beginners in crypto trading as the process of registration, logging in, checking balances will be easier and quickly adapt to.
- More control is given to traders to hold their respective private keys.
- Coins can be easily recovered by reaching out to the exchange’s 24×7 support team in case the users have lost or forgotten their passwords.
- High liquidity is ensured as many users can simultaneously purchase a certain asset even when the demand is high.
- Centralized exchanges also offer many innovative and value-adding features such as margin trading, pair trading, variety of order types, and portfolio management tools for decreasing risk levels.
- It is easy to regulate centralized exchanges due to the nature of official licensing and operations occurring as per the guidelines of the relevant jurisdiction.
Important components of a Centralized Exchange
- Trading engine – It plays a major role in matching the buyer and seller’s orders. By checking the balance in a trader’s account, it can also restrict future orders. The trading engine also displays the latest information about prices, market movement through interactive charts, and graphs.
- Wallets – Wallets are important for storing a user’s coins securely. A centralized exchange provides both hot and cold wallets. Hot wallets have a positive balance as it receives money on the crypto exchange and gives payment to traders. Cold wallets store the main cryptocurrency and they are disconnected from the internet. It acts as a backup if funds are swindled away from a hot wallet.
- Website functionality – The website must be intuitive and guarantee an enhanced trading experience. It must work across multiple devices in different versions. A well-maintained website ensures quick registration and smooth verification.
Some of the popular Centralized exchanges are
- Binance – Though it was launched only a few years ago, it has been witnessing record trading volumes. By offering most of the cryptocurrencies for investors, the process of raising funds has become easy. It also has flexible options for the withdrawal of cryptocurrency and possesses sufficient liquidity.
- Bittrex – This exchange is well known for offering a variety of trading pairs for its investors. It helps in better diversification of funds. Bittrex also offers an easy- to- use interface for crypto amateurs. New coins are constantly being added to the platform.
- GDAX – GDAX stands for Global Digital Asset Exchange. It is well known for margin trading and offering a variety of fiat/crypto and crypto/fiat pairs. Professional traders are also benefited by a $250,000 insurance package from the Federal Deposit Insurance Corporation.
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Centralized Cryptocurrency Exchange Software Development Solutions