11 July 2020

Photo by Jason Briscoe on Unsplash

After some time in the crypto space, you might be familiar with decentralization and decentralized finance (defi). This is one of the main cornerstones of crypto as we know it. You may have also heard about something called a Decentralized Exchange (or DEX). What is DEX? What’s it for? Don’t worry, we are going to explain all you need to know about DEX in this article.

What is a Decentralized Exchange (DEX)?

Decentralized exchanges allow peer-to-peer exchanges, which reduce the risk of theft or hacking. It also prevents price manipulation. So, DEX is the safest way to make any crypto transaction.

The good thing about DEX is that the rules are made by and for the users. No matter what platform or cryptocurrency, DEX works the same for all platforms. In addition, given that DEX is made by and maintained by the users (and investors), decentralized exchanges are surprisingly secure.

 

Are Decentralized Exchanges Secure?

The security levels of these decentralized exchanges are high. It is very, very difficult for it to be hacked.

Back in 2014, Mt. Gox got a massive security attack, and millions were stolen. This is because the centralized hot wallets of the exchange were targeted. These wallets presented one single point of failure.

This would hardly happen in DEX. In DEX, every user is in total control of their funds, and it is private. Since there is no personal information on the platform, there’s not a single entry point where someone could find all assets and data. With this in place, the work of a hacker becomes pointless.

However, given that a DEX has no centralized authority holding user account or wallet information, if a user misplaces there information it is essentially lost to the cryptosphere; in addition, the lack of a central authority may not enable some currencies of backers to ever be eligible for insurance such as FDIC backing. 

 

Are Decentralized Exchanges Regulated?

Another important point of these decentralized exchanges is that they are not regulated. Since they are not regulated by any bank or government, you can exchange all around the world.

There are countries like China and India where cryptocurrency exchanges are entirely banned. Some others, like Mexico, Russia, Saudi Arabia, and Brazil, have restricted cryptocurrencies.

Since governments are the ones regulating, using a decentralized exchange can help you out. With it, you can trade without worrying about any regulations that any country may have.

decentralized exchange
via The Block Box

How Does a Decentralized Exchange Work?

Again, there no third parties involved. There is no central structure manipulating the exchanges.

Everything operates according to the specific rules within the platform. These rules are made by the users themselves. DEX does not need any personal data, not even an email address, so no personal data cannot be stolen at all.

This makes services based on a distributed registry more anonymous than other exchanges. You don’t need to comply with any KYC or AML.

 

Can You Create dApps and Assets in a Decentralized Exchange?

Incredibly enough, you can create your dApps on DEX! Yes, you read that right. This system allows you to trade existing cryptocurrencies and also to create dApps. This enables startup projects to provide liquidity without having to pay high fees for placement on major platforms.

 

Conclusion

DEX are easy to use and incredibly fast. You do not have to pay for any extra fees for your transactions. They are super safe as you do not have to use any personal information, and they are protected by Smart Contracts. This means that DEX keeps crypto completely decentralized.

The Decentralized Exchange is the bedrock upon which all cryptocurrencies trade across

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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