One of the major concerns that people have held and still hold regarding the crypto industry is the issue of safety. Previously, major currencies, including Bitcoin, have been hacked, leading to numerous people losing their investments and, thus, the general attitude and perception regarding digital assets being negative and unwelcome. However – such happened over a decade ago, and currently, various technologies have been built to make the digital asset industry even more secure, and inherently sustainable and scalable. A lot of us tend to worry about the security of our crypto assets on centralised exchanges since they require middlemen. Although they are convenient, having third parties breeds the risk of hacking and theft because your funds or assets are not in the control of a single entity. Decentralised exchanges are a solution and a securely advanced alternative to the mentioned.
Decentralised exchanges, commonly called DEXs, are a safer way to trade cryptocurrencies while maintaining control of your private keys. On a DEX, you trade directly with other users instead of depositing your funds with an exchange. Your crypto is never locked up in a centralised wallet, making it impossible for hackers to target your wallet. This article will discuss how DEXs work and recommend some of the most popular platforms to help you start trading securely.
What Are Decentralised Exchanges?
Decentralised exchanges (DEXs) are a different breed of cryptocurrency exchange. Unlike centralised exchanges like Coinbase or Binance, DEXs have no central authority controlling funds. Instead, they allow you to trade crypto directly with other users. DEXs cut out the middleman, so you always maintain control of your private keys and coins. This allows the user to not have to worry about hacks, scams or government seizures as they would completely control their wallet and digital assets.
Using a DEX is simple. Just connect your wallet, like MetaMask, to the exchange, and you can instantly start trading. There are no lengthy signup processes or submitting personal info. Furthermore, these exchange platforms have a basic interface where you can view market data, check price charts, place buy and sell orders, and view your trade history.
The only discouraging aspect of DEXs is that they have lower liquidity, so trades may take longer to complete, and prices can be slightly higher. However, liquidity also inclines as they gain momentum and grow in popularity and adoption.
How Decentralized Exchanges Work
As mentioned earlier, DEXs eliminate the need for an intermediary or central authority, allowing you to trade cryptocurrencies directly with other users. Here’s how they work:
Instead of a company controlling your funds and facilitating trades, decentralised exchanges use autonomous programs powered by smart contracts on the blockchain. They match buyers and sellers anonymously and execute trades without holding your money.
You connect your cryptocurrency wallet to the exchange to trade on a DEX. This allows you to place bids, buy and sell orders that are recorded on the blockchain. Once a match is found, the smart contract automatically completes the trade by transferring funds between the two wallets.
The main benefits of DEXs are security and control. Since you’re always in control of your private keys, there’s no central point of failure and no risk of theft from exchange hacks. You also get to trade a wider range of cryptocurrencies that may not be listed on mainstream exchanges.
The above will be explained in more depth below.
Benefits of Using Decentralised Exchanges
Increased Security
Since decentralised exchanges don’t hold customer funds or personal information, there is less risk of hacking and theft. Your coins remain in your own digital wallet until a trade is made, so you maintain full control of your assets. Without a central point of failure, decentralised exchanges are more resilient against attacks.
Anonymity
Decentralised exchanges only require an email to get started, so creating an account is quick and anonymous. All transactions are recorded on the public blockchain, but your personal details remain private. For those concerned about privacy and censorship resistance, decentralised exchanges are appealing.
Accessibility
Anyone with an Internet connection can access a decentralised exchange and trade cryptocurrencies. There are no restrictions based on your location or identity. As long as you have a compatible digital wallet, you have the freedom to trade on decentralised exchanges.
Lower Fees
Decentralised exchanges charge lower fees than centralised exchanges because they have lower operating costs. Without needing to store customer funds or comply with regulations, decentralised exchanges can pass on the cost savings to traders through lower trading fees and commissions.
Bitcoin Decode Official, a trusted automated trading bot claims that decentralised exchanges provide a safer, more private, and affordable way to trade cryptocurrencies. If you value security, anonymity, and lower fees, decentralised exchanges are worth exploring as an alternative to centralised exchanges. The crypto world is vast, so do your own research to determine what exchange options are right for your needs.
Top Decentralized Exchanges
Uniswap
Uniswap is one of the most popular DEXs. It’s an automated liquidity protocol on Ethereum that allows you to swap ERC-20 tokens without an intermediary. Uniswap makes it easy to list and trade any ERC-20 token. There are no listing fees, so anyone can list a token.
PancakeSwap
PancakeSwap is a DEX on Binance Smart Chain. It offers fast, cheap trades and liquidity pools for Binance Coin (BNB) and other BEP-20 tokens. The exchange has become popular thanks to low fees and fast transaction times on Binance Smart Chain compared to Ethereum.
SushiSwap
SushiSwap is a community-driven DEX forked from Uniswap. It aims to diversify the AMM market and reduce high Uniswap fees while rewarding liquidity providers and community members. It further allows users to stake their crypto to earn rewards and vote on new token listings and platform upgrades.
How to Get Started With Decentralized Exchanges
Find an Exchange
To get started with decentralised exchanges, you first need to find an exchange that offers the cryptocurrency pair you want to trade. Some of the most popular include those listed above, and they offer trading pairs for major cryptocurrencies like ETH, USDT, BTC, and BNB.
Connect Your Wallet
Once you choose an exchange, you’ll need to connect a crypto wallet to facilitate your trades. Metamask is a popular choice and works with many DEXs. When you connect your wallet, you’ll be prompted to sign a transaction allowing the DEX to access your wallet address and crypto balances. This allows the DEX to display your portfolio and complete trades.
Trade Anonymously
A key benefit of DEXs is that they allow you to trade anonymously without sharing personal information. Your wallet address is the only identifier, and you’re in full control of your private keys. This is unlike centralised exchanges that require ID verification and hold your funds.
Low Fees
DEXs typically have lower fees than centralised exchanges because they are non-custodial, meaning they don’t actually control or store your crypto. They simply facilitate peer-to-peer transactions between traders. Fees on DEXs are usually under 0.5% per trade.
Trade 24/7
DEXs operate 24 hours a day, seven days a week because they rely on automated smart contracts rather than human operators to execute trades. This means you can trade at any time – the decentralised and non-custodial nature of DEXs allows for constant uptime and access to your crypto.
How are DEXs eliminating crypto fraud?
Decentralised exchanges (DEXs) are helping make crypto trading safer by reducing fraud and scams. Here’s how:
No single point of failure
DEXs have no central organisation or servers, so there’s no single point of failure. Your funds are never held by the exchange, only in your own wallet. This means DEXs can’t be hacked, scammed, or shut down by regulators.
Anonymous and private
DEXs typically don’t require personal information to trade. All you need is a crypto wallet address. This anonymity protects your privacy and personal data. Of course, for larger trades, you’ll still need to go through KYC (Know Your Customer) verification to comply with regulations. But for smaller trades, DEXs let you maintain anonymity.
Open source and transparent
The code behind DEXs is open source, meaning anyone can audit the code. This transparency builds trust that there are no hidden backdoors or exploits. Bugs and vulnerabilities can also be spotted and fixed quickly by the community.
No manipulation
Centralised exchanges are prone to price manipulation and “pump and dump” schemes by big companies. Thanks to their decentralised and anonymous nature, DEXs make this much harder to pull off. No single person or group controls the flow of funds.
By eliminating the need and use of middlemen and central authorities, decentralised exchanges are helping create a crypto trading environment with fewer risks of fraud, scams or abuse. The result is a fairer, freer and more transparent market for all.
How can DEXs be used in traditional sectors?
Decentralised exchanges (DEXs) have the potential to disrupt traditional sectors like finance, supply chain management, and healthcare.
Finance
In finance, DEXs could reduce trade settlement times and costs while improving security and transparency. Smart contracts on the blockchain enable instant settlement of trades without the need for intermediaries like clearinghouses. This could significantly reduce costs and speed up transactions. The transparent and immutable nature of the blockchain also reduces fraud and error.
Supply chain management
For supply chain management, DEXs open up opportunities to track the provenance and journey of goods. Smart contracts can be used to automatically verify each step of the supply chain, ensuring goods are transported and handled properly. This could reduce waste, improve quality control, and give consumers more insight into where their products come from.
Healthcare
In healthcare, DEXs could improve data security and interoperability. A decentralised network makes it much harder for data to be accessed or stolen unlawfully. At the same time, smart contracts can be designed to only share data with authorised parties, giving patients more control over their information. A DEX could also enable different healthcare providers, insurers, and other parties to securely share data and coordinate care.
While still a new technology, DEXs have significant potential to enhance security, reduce costs, improve transparency, and enable new capabilities across many traditional sectors. The decentralised and autonomous nature of DEXs could help establish trust and efficiency in areas where it’s currently lacking.
An important aspect of cryptocurrencies and blockchain technology that we need to consider is how solutions are constantly being developed to help eradicate and address issues that arise to have systems be more functional. Security is a major aspect when coming to any financial investment, and as such – decentralised exchanges which run on blockchain technology are evidently the future that should further be applied even in mainstream sectors. The technology behind tDEXs is advancing rapidly, so the experience will only get smoother and more user-friendly over time. If you have been undecided, perhaps now, after reading this, you can make a more informed decision and take a leap of faith in digital assets.