This article will bring you a thorough knowledge about Differentiate exchange vs swap vs DEX – 1 of the most important aspects of blockchain technology.
Centralized exchange refers to an online exchange platform where digital assets such as Bitcoin (BTC), Litecoin (LTC), Ether (ETH) and even physical assets are traded.
In essence, CEX acts as a middleman between the buyer and seller participating in the transaction, where profits are generated through transaction fees and commissions. Centralized exchanges have their own rules and regulations, but they work on a common goal of providing users with prevalent access.
A centralized exchange works similar to a stock exchange, but it facilitates the buying, selling and exchanging of digital assets instead of stocks. It requires traders to complete KYC (know your customer) verification to become registered users. Verification usually includes verification of ID, name, address, and biometrics. Once verified, the exchange sends login details for the user to log into their account, execute the rules and start trading.
Users on centralized exchanges cannot exchange assets directly as well. The exchange takes over the management of funds deposited by users and will then issue an equivalent amount of IOUs to traders that they can only exchange at the time of withdrawal.
Decentralized exchange built on the blockchain allows anyone to trade their digital assets on a secure and transparent platform without any intermediaries. The DEX has the essential features of a centralized exchange and it stands out in facilitating the trading of all available virtual currencies. That means traders don’t need to worry about coin listings being limited to the DEX.
Decentralized exchange mechanism?
Order book method and Automated market maker method (AMM) are decentralized exchange mechanisms. We can simply describe them as:
There are 2 types of order books method, these are:
An on-chain order-based decentralized exchange includes nodes to maintain all open orders. This method requires miners to validate each transaction.
As opposed to on-chain, off-chain order-based decentralized exchanges need a centralized entity to store transaction records. However, the transaction takes place on a decentralized peer-to-peer network. So, off-chain order book DEX can be considered semi-decentralized.
Swaps facilitate the instant exchange of two non-native tokens between two unique blockchain protocols, without the need to initiate a crypto-to-fiat exchange or migrate traditional tokens. system. It allows users to swap tokens directly from official private key wallets or trading accounts. In-wallet exchanges offer many benefits to traders, such as unattended transactions, on-chain exchanges, faster transactions, and zero network fees.
Swaps facilitate a seamless crypto-to-crypto exchange with no intermediaries involved in the process. Users do not need to adopt the traditional approach of converting the native currency to fiat and then purchasing the desired cryptocurrency. The conversion of tokens to fiat currency is time consuming and highly demanding from users.
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