Centralised organisations have become commonplace: our financial structures, states, and nations as a whole are all highly centralised. The most popular method of controlling digital currency is through centralised cryptocurrency exchanges. But, exactly what does that imply? Is this a good thing or a bad thing? Or maybe there's room for improvement? Let's have a look at what centralised cryptocurrency exchanges are and if they're right for you.
A centralised cryptocurrency exchange is one that serves as a middleman to facilitate transactions. Traders must rely on the exchange to act as a middleman in the handling of their securities, similar to how a bank acts as a middleman in the handling of money and transactions.
As a result, centralised exchanges are seen as more reliable and familiar, especially by beginners. They will provide protection and surveillance that you may not be able to provide on your own, and traders can trust that the exchange can complete requested transactions for them, as well as take advantage of the network of connections available to facilitate trading.
There's always the possibility that third parties may have security flaws, but they may also have a safer or more realistic way to trade cryptocurrency. A fully trustworthy middleman—in control of moving money from point A to point B or securing assets—can make transactions go more smoothly and reduce customer risk.
Getting a third party involved in a transaction that could be done just as well — if not better — in a direct manner, on the other hand, is normally unnecessary; it clogs things up and makes the experience more costly for both the manufacturer and the user. After all, the middleman must be compensated, which results in a reduction in earnings or an increase in prices.
A group with a lot of power is one that has a lot of useful data. Take, for example, conventional banks. An internal, centralised database stores all of your account information, including your balance, transaction history, and personal information. Today's tech behemoths (Facebook, Google, and others) are largely centralised entities with vast data repositories. It's your details. It's my details. It's everyone's information. This is the pinnacle of centralization, and if you're not careful, it might turn into a crisis.
Centralised cryptocurrency exchanges, on the other hand, may cause issues for investors. This form of exchange keeps the private key to your funds and stores them in dedicated, exclusive cryptocurrency wallets (s). Your digital assets are effectively under the management of the exchange. This can be unsettling for hands-on investors who want full control of their money, and it can also cause security concerns if the exchange is hacked.
Multiple centralised exchanges have been compromised in the past (with the cryptocurrency equivalent of billions of dollars stolen), so the bottom line is that storing your cryptocurrency on a centralised exchange can't be considered completely safe. More proven centralised exchanges, on the other hand, are taking measures to improve security, with Coinbase offering up to £250,000 in protection in the event of a hack. Higher transaction costs are associated with increased security, but if you're particularly concerned about security, you might think it's worth it for peace of mind.
At their heart, cryptocurrencies and blockchain were designed for decentralisation, and potential exchanges would most likely follow suit. Nonetheless, investors mostly use centralised exchanges because they can provide workable solutions that are simply good enough.
People are used to centralised practises, which is a good side of introducing them in cryptocurrency exchanges. Users of centralised exchanges are likely to find the process simpler and faster to adapt to, given the similar process of signing up for an online account, logging in to make transactions, and having the balance saved on an app or website. This makes them particularly attractive to newcomers to the cryptocurrency market.
The confusion and overwhelm surrounding private key storage and setting up various types of cryptocurrency wallets may discourage potential investors from entering the crypto room. People are used to using passwords since we live in the password era. The best way for new exchanges to draw new customers is to use familiar processes.
New log-in methods, thankfully, go beyond basic email/username/password combinations. Almost all secure exchanges now have additional account security features including email authentication or Google Authenticator codes. Although the majority of cryptocurrency exchanges are still centralised, this is fine as long as your data is safe.
Some may argue that using a centralised cryptocurrency exchange is more stressful. People have lost all of their on-exchange investment funds overnight as a result of centralised exchange hacks. Getting the opportunity to retrieve missing or forgotten passwords through an exchange, on the other hand, will save you a lot of time and effort. While having your own private keys gives you a lot more power, many investors prefer simple storage on a centralised exchange. As a result, expect more centralised exchanges to emerge. These exchanges are money printing machines for ambitious entrepreneurs who can remove security issues.