Technology

An introduction to decentralized Wallets and Centralized Wallets

A central exchange (or CEX) is a place where transactions are coordinated, such as Binance or Coinbase. A company that facilitates asset buying and selling, such as Binance or Coinbase, is called a centralized exchange (or CEX). The CEX is responsible for the custody of the funds and can change the rules and regulations that govern the platform. They have been exposed to theft and hacking too often in crypto.

Centralized Exchanges: The Pros and Cons

Pros

  • Advanced UI/UX that is user-friendly

  • Fiat On-ramp available

  • High liquidity

  • There are many trading options

  • Higher trading volumes

Cons

  • Central entity controls the operation

  • Security is lower because funds are managed by the company (settlement withdrawal, deposits, withdrawals).

  • Compromised anonymity (KYC required)

  • Geographical restrictions may be severe

  • Reliance on a central database and the capture of Personal identifiable information makes it less secure

Decentralized exchanges : The Pros and Cons

 

Pros

  • Trustless, no intermediaries

  • As funds are self-managed, they are highly secure

  • No KYC required for anonymity

  • Permission less and unregulated

Cons

  • UX/UI can be complex

  • No fiat on the-ramp

  • Some tokens have lower liquidity

  • Trading options are limited

What are wallets exactly?

A crypto wallet is simply a digital wallet that lets users store, manage, and trade cryptocurrencies. It acts as your identity for buying Bitcoin, Eth and other crypto currencies. It stores your address and records what you buy and sell.

A crypto wallet can also store the public and/or secret keys that are necessary to conduct cryptocurrency transactions. A public key acts as your bank account numbers. You can share your public keys with other people and institutions so that they can send money to or take money from your account. They will view your public secrets as a wallet account. A hashed, compressed version of your public key is what they use.

A private key, on the contrary, can be used as a password for your bank account or your PIN to your debit card. Your private key is your password or PIN to your debit card. Anyone who has access will have full access to all of the assets in your wallet.

The cryptocurrency you receive is not stored directly in your wallet as it is a digital currency. Instead, the wallet stores information about both your public and private keys. This information essentially gives you ownership rights to the cryptocurrency. With these keys you can send and receive cryptocurrency. However, your private key will be encrypted.

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