What are Decentralized Exchanges (DEX)?

When you step beyond the shadow of investing and look under the hood of cryptocurrencies, you will very quickly find the ideas of freedom and independence from any entity . But then you come into practice and find out that the reality does not completely correspond to the ideal. When you want to buy a cryptocurrency these days , you always first go to centralized services such as an exchange office or stock exchange . In addition to exposing yourself to scrutiny by the institution, you are also putting yourself in a position where your cryptocurrencies are not actually under your control during the purchase process.

Wouldn’t it be better if one could escape from these services, which are constantly under the supervision of the company and the state? There is definitely a way. There are so-called decentralized exchanges . 

Decentralized systems in a centralized world

We know you are reading this article because of decentralized exchanges. But let’s first describe the centralized services . The difference will then be immediately visible.

Imagine you are the owner of a cryptocurrency exchange. At the beginning of such an idea, there is a lot of running around the authorities . After filling out a bunch of forms, you only get to figure out all the systems. 

Now comes the time to set up the fee structure and other things . You need registration forms, some way to store customer data, and an environment in which people will operate and trade. Expect all of this to take at least a few months of hard work, but rather look at years. There is a good chance that the legislation will also change during that time and additional obligations will be added . In this “state” view, we can mention, for example, the mandatory process of verifying the customer’s identity when trading over a certain amount, or the newly introduced necessity to collect and verify the cryptocurrency projects themselves.

You can see that there is a lot of it. Such an endless list of things you have to take care of as an owner. To sum it up somehow. A centralized exchange looks something like this:

  • Collects user data – In each registration, you will be required to submit personal information such as name, date of birth, address and more
  • Must comply with legislative requirements – Collect additional data about the customer, monitor their business activity, open accounts in the customer’s name with other institutions
  • It sets its own rules – Fee structure, minimum tradable amount, approved currency pairs
  • Holds customer funds – Cryptocurrencies and other assets are stored in wallets and accounts of a service that only gives you access to them
  • Authorizes the customer to handle their property – You cannot handle your property without confirmation from the company

The very control, countless rules and the danger that someone will abuse this system . When you look at centralized services with a truly objective eye, you will find risks that will make you sick, especially in the cryptocurrency world. 

Digital assets lie in the stomach of many lawmakers who wish to do everything to ban them . And what will be the first place to be affected by any potential bans and confiscations? If we were in their place, we would focus primarily on stock exchanges and exchange offices . Since these are businesses that need appropriate measures and fall under state supervision, it would not be difficult. They simply won’t work against our will, and we can thus confiscate all cryptocurrencies from users who left them here.

Decentralized exchanges (DEX) are changing the rules of the game

The hard core of the cryptocurrency community is the last group of people who would like such a thing. So it’s no surprise that a lot of people wanted to break away from this system. Thus came the idea of ​​decentralized exchanges .

Decentralized exchanges are almost the exact opposite of centralized ones. They do not care about users, do not collect any sensitive information and do not require filling out investment questionnaires . A decentralized exchange is actually only a place that connects traders, but does not mediate or arrange trade between them. DEX never holds or works with merchant funds . So there is no risk of state power coming and confiscating everything.

The problem is the transition from fiat currencies to cryptocurrencies

Decentralized exchanges are a great idea, but they have a major problem – they only work with cryptocurrencies . A dollar cannot be exchanged for ether on a decentralized exchange. You can’t use a card here and pay someone for cryptocurrencies. In order to use decentralized applications, exchanges and exchanges, the user must already own some cryptocurrencies . Buying cryptocurrencies for fiat currency (dollars, euros, crowns, etc.) is, unfortunately, in most cases extremely regulated and privacy is lost. The user and his addresses are literally tagged.

There are definitely ways to get cryptocurrencies without the user having to reveal their identity . But compared to services like Anycoin , Coinbase , etc., they are difficult, which means that the community is more likely not to use them.

This onboarding is one of the challenges that cryptocurrencies and decentralized applications will have to deal with somehow.

How Decentralized Exchanges (DEX) Work

One of the most important things that decentralized exchanges have brought is a new perspective on the trading system .

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