Binance has just announced that they plan to develop a public blockchain in order to create a new exchange. This time, a decentralized exchange.
Taken from the Binance statement:- “After extensively researching decentralized exchange frameworks and analyzing existing implementations, we believe significant improvements can be made in providing Binance users with a level of trading experience to which they are already accustomed. Centralized and Decentralized exchanges will co-exist in the near future, complementing each other, while also having interdependence. We stand here today because we believe that Blockchain technology will change the world. In the face of adversity, we have always elected to tackle issues head-on, instead of retreating. As such, we have decided to officially launch the development of the Binance Chain.”
What are some of the differences between decentralized and centralized exchanges?
- A centralized exchange is a business run by a CEO and employees similar to a financial institution. Coinbase, Cryptopia, Binance and Bitfinex are examples of centralized exchanges. A decentralized exchange is not run by any individual or business. A DEX is backed by blockchain technology, for example Waves DEX, CryptoBridge, Bisq
- It is very easy to start buying or selling on a DEX as there is no central authority approving or disapproving applications vs a Centralised exchange which requires KYC documents. Know Your Customer (KYC) documents which generally require verification before trading can commence are ID/Passport and proof of residence. People who wish to remain anonymous prefer to trade on decentralized exchanges vs centralized exchanges being more under scrutiny by regulators and the taxman. Regulators in some countries are targeting Centralized exchanges to ensure compliance to verifying customer KYC’s, anti-money laundering laws and market manipulation amongst other other requirements. Read more – Click Here
- A decentralized exchange never holds any customer funds vs a centralized exchange that hold coins in large company wallets. This is often a single point of failure and vulnerability for centralized exchanges as numerous have been hacked. Decentralized arbitration system and security deposits protect traders. Here are some hacks of centralized exchanges that have occurred – Mt.Gox in 2014 and recently in 2018, CoinCheck and the attempted hack of Binance who offered bounty of $250,000 leading to the arrest of the responsible hackers.
- Account holders on Centralized exchanges do not control their private keys, the exchange does. With Decentralized exchanges, you are in control of your private keys.
- Centralized exchanges rely on their servers and when traffic to the website is too high, sometimes the servers go down and account holders cannot access any of their coins. Decentralised exchanges do not rely on servers and as a result, never go down. Decentralized exchanges are distributed on thousands of computers globally.
Decentralized exchanges are still in their infancy but gaining popularity due to some of the positive reasons mentioned above. Often early investors in crypto opt to go the centralized exchange route despite the privacy and anonymity issues. In a recent announcement, a new form of secure exchange is in development.
The Embedded Exchange will not only be decentralized, it will also run inside the Embedded Vault which means the whole exchange itself will be encrypted, ultra-secure and all funds will be controlled by the participants themselves and not the exchange.