Due to the advent and popularity of cryptocurrency, traders are always thinking about creating more efficient, secure, and flexible trading platforms. This need for new and modified exchange led to the development of peer-to-peer (P2P) crypto exchanges.
There are two main exchange types: centralized and peer-to-peer exchange. The key difference between these crypto exchanges is ownership also known as a DEX. Explaining centralized exchanges, they operate very similarly to banks and exchanges today.
However, the centralized crypto exchange model has existed for centuries, the idea of a decentralized exchange is new. The concept was converted to a functioning solution with the creation of crypto assets and a transparent, immutable ledger. The peer-to-peer crypto exchange allows traders to use the blockchain for keeping track of ownership without the involvement of a 3rd party platform.
Here are some of the core aspects of both these exchanges explained:
Peer-to-peer Crypto Exchange Fees
Crypto trading fee is an aspect that is deeply considered by the traders when considering opting for an exchange. Unlike the market’s best crypto exchanges, traditional stock trading platforms such as TD Ameritrade or ETrade charge users a set “per-trade” fee. Centralized exchanges charge a specific percentage for every trade and transaction that results in making the overall cost of trading crypto much higher as compared to both stocks and peer-to-peer trading. On the other hand, decentralized exchanges resemble the “per-trade” fee framework traders are used to, however, it is in the form of gas. Peer-to-peer exchange allows high volume trades that would potentially cost a large fee to be executed for pennies.
Anonymity is one of the most appealing points in drawing users to decentralized trading models. Because of KYC regulations, traders are required to provide a great deal of their personal data to the platform. This is often the reason to decrease signup and friction in the onboarding process. A centralized exchange is obligated to ensure this information-gathering is mandatory as a way to stay compliant with Anti-Money Laundering Laws (AML). Whereas peer-to-peer crypto exchanges don’t possess any central authority, hence the platform does not have this requirement imposed on them. Traders can easily sign up and start trading without any identification authentication and other verifications.
Liquidity is one of the major features of why centralized crypto exchanges have a large lead over decentralized platforms. Without liquidity, price discovery is difficult to achieve and this leads to easy market manipulation. A hacker can influence an exchange with low liquidity by putting in fraudulent orders that will not be detected. Although this isn’t a consequence of being decentralized, this might become an ongoing factor if the trust isn’t established.
Fiat-to-crypto is a process that supports the conversion of a legally issued fiat currency into a crypto-based currency. Centralized trading models are the safest crypto exchanges that offer the benefit of being the first interaction most people have with cryptocurrencies; they are one of the only fiat-to-crypto on ramps.
The aspect of fiat-to-crypto is not available on the decentralized crypto exchange, and it will take a while because fiat is quite different from a crypto token. Someone is required to offer dollars or euros for the functioning exchange, and then these dollars and euros live in systems that are not blockchains. Moving forward stablecoins or the fiat coins may take place of this eventually, however that earliest exchange from fiat-to-crypto will still require a central entity.
Choosing What’s Best for You!
This cannot be concluded clearly as to which crypto exchange structure is the best to use. You could be extremely comfortable with taking care of your own crypto security But still, want access to high frequency algorithmic trading decisions that are available using centralized exchanges.
To get a piece of both worlds. The best strategy here is a combination of responsibility between you and your chosen exchange. You can hold on to your own keys and then deposit them into a centralized exchange only. When you want to complete a trade. Traders can also perform a fiat-to-crypto trade on a centralized exchange. Later move the funds to desired decentralized exchange after using a coin mixer to create a level of anonymity.