The difference between centralized and decentralized exchanges

First, the decentralized exchange is mainly for transaction aggregation and on-chain asset settlement, and user assets are hosted by smart contracts and controlled by users, and the exchange does not touch user assets.

Secondly, the biggest value of decentralized exchange is that users have absolute control over their assets, and all transaction data and records will be uploaded through blockchain smart contracts, thus ensuring the openness and transparency of transactions and greatly reducing the trust cost of users to the exchange.

Again, it is very difficult for hackers to steal user assets unless they have access to each user's private key, and even if the exchange's private key is leaked, it is impossible to transfer user assets without the user's private key, so it is very safe. Using decentralized exchanges, you no longer have to worry about the risk of losing or stealing coins.

Because of this, as the underlying technology of blockchain gradually matures, decentralized exchanges have great potential for development and are the future trend.

Let's compare the differences between centralized and decentralized exchanges in detail.

[Centralized Exchange]

I. Trading process

1. Open an account: register an account and set a password, then enter the exchange for coin trading through the password. Of course, KYC certification is best to do, but in general, as long as the transaction account has assets, will do.

2. Top-up: In the process of Figure 12, according to the properties of the coin, the exchange will allocate the coin address and the coin address corresponding to the token for the user to top-up the token. This address is assigned to the user by the exchange, the user only enjoys the address, but does not have the corresponding key, the key is still in the hands of the exchange!

3. Automatic transfer: As in Figure 23, when a user tops up his wallet address to his exchange address, all coins will be automatically transferred to the exchange address, and the exchange will act as a credit backing to hold the user's asset tokens. At this point, the actual controller of the user's assets is the exchange.

4. Transaction: As in Figure 34, the user submits a transaction order to the exchange, and the centralized server of the exchange conducts the transaction aggregation, and then tells the user the result after the transaction. The biggest advantage of centralized aggregation is that the transaction depth is good and the transaction efficiency is fast.

5. Withdrawal: As in Figure 31, the user submits a withdrawal order to the exchange. From the process we can see that all the coins are in the address of the exchange, the process of withdrawing coins is from the exchange address to the user's wallet address.

II. Costs incurred

1. When topping up, the user's wallet address is topped up to the address assigned to the user by the exchange, and the fee is borne directly by the user;

2. When trading, the exchange will charge a fee, which will be deducted directly from the corresponding coin, and the fee will be borne directly by the user;

3. When withdrawing funds, the exchange address will be topped up to the user's wallet address, and the user will be charged directly for the transfer fee.

III. Advantages

1. The transaction depth is good and fast, even in the face of a large number of concurrent real-time transactions, it can still provide users with a good service experience.

2. Large volume of users and transactions, with sufficient liquidity.

3. All transactions are booked by IOU, and the transaction cost is very low from the technical point of view.

Ⅳ. where the disadvantage

1. Human factors: centralized management, including internal operational risk, business ethics risk, asset theft and other risks that seriously affect the safety of user assets. For example:

In February 2014, the famous Mentogu incident, Mt.

In January 2017, the Bitcoin Asia Lightning Exchange ran away with hundreds of millions of dollars.

On September 6, 2017, Wright China ran away with the money, the page was closed, investors were blacked out, and the money disappeared.

2. technical factors: the centralized custody of assets, will incur a huge risk of hacking, quite a test of the site's technical ability and emergency response capabilities, such as:

In August 2016, 120,000 bitcoins were stolen from Bitfinex in Hong Kong due to a security breach on the site, which was worth $65 million at the time.

On January 26, 2018 cryptocurrency exchange Coincheck was hacked to steal a large amount of NEM, losing about $530 million.

February 10, 2018 Italian exchange BitGrail was hacked and lost 17 million NANO coins with a total value of about $170 million.

[Decentralized Exchange].

I. Trading process

1. account: register to get a new address and key, the user holds the private key, has absolute control of the assets, once lost can not be retrieved.

2. Recharge: Recharge is relatively simple, directly from the wallet address to the new address of the decentralized exchange, as shown in Figure 12 process.

3. Transaction: When a transaction is initiated, the smart contract of the decentralized exchange is executed directly to complete the transaction, and the user has the ownership of the coins throughout the process, and the decentralized exchange has no control over the process, as shown in Figure 23 and 32.

4. Withdrawal: The user transfers money from the decentralized exchange to his wallet address, as shown in Figure 21.

II. Costs incurred

1. When topping up, GAS consumption is incurred when topping up from the user's wallet address to the new address of the exchange.

2. When trading, the decentralized exchange will also charge a fee, which is deducted directly from the coins traded.

3. When withdrawing funds, the exchange address will be replenished to the user's wallet address, and the corresponding GAS will be consumed.

However, from the TRON wavefield decentralized exchange, the current transfer and withdrawal are free of charge, which is also related to the characteristics of the TRON main chain, which is quite tempting for users!

III. Advantages

1. The decentralized exchange model is simple, mainly for aggregating transactions, and does not host the user's assets, eliminating the possibility of the exchange monitoring and stealing.

2. The biggest difference with the centralized exchange is that all of this is achieved through smart contracts, and the assets are hosted, aggregated transactions, and asset clearing are placed on the blockchain.

3. Smart contracts are used to realize a decentralized and trustless transaction mechanism, which solves the risk of internal operation, business moral risk, asset theft and other risks that seriously affect the safety of users' assets caused by human factors in centralized exchanges.

4. The user's escrow assets can be freely transferred without anyone's approval, and there is no need to worry about hackers stealing or losing coins, which is a sufficient security guarantee.

Ⅳ. where the disadvantage

1. All the transaction records of decentralized exchange will be on the chain, which is affected by the confirmation speed of the blockchain itself and makes users feel very slow, which is not friendly to the user experience.

2. It cannot handle large concurrent real-time transactions, and the transaction volume and depth are not as good as centralized exchanges, and the liquidity is limited. Most decentralized transactions have this problem.