The concept of decentralization is pivotal to the blockchain and cryptocurrencies that run on it. The notion itself is pretty basic — a decentralized system simply operates without centralized control. But when it comes to secure exchanges for trading altcoins, is the difference between centralization and decentralization meaningful? And if so, should you look for decentralized exchange sites when selecting your next best crypto exchange?
Centralized vs. Decentralized Exchanges
Blockchain and cryptocurrency technology were built on the premise that secure transactions can be achieved without the need for a central authority.Unlike traditional third-party payment processors like PayPal or Mastercard, cryptocurrencies can self-verify every transaction made by the people who use them. Whether they are using digital coins to make purchases, accepting crypto as payment for goods and services, or trading altcoins, every transaction performed using a decentralized blockchain currency is performed trustlessly and securely. This avoids the time and expense of verifying transactions manually, which has been the standard for online transactions up until now.
When it comes to cryptocurrency exchange websites, however, centralization remains a core concept. Just like PayPal, centralized exchanges are run by companies that manage and earn revenue from transactions on the platform. Decentralized cryptocoin markets, on the other hand, run through ablockchain relying on a peer-to-peer protocol. So, trading altcoins is done through dozens or even hundreds of independent nodes and masternodes. Transactions occur only when the nodes come to a consensus based on the exchange’s verification rules. This process typically takes more time than the near-instant transactions digital coin traders see on popular centralized exchanges, but decentralization carries with it several key benefits.
Benefits of Decentralization
The main benefit of decentralization is the security associated with operating on a trustless system. Since 2011, there have been at least 56 known cyberattacks on centralized cryptocurrency exchanges. Hackers have made off with hundreds of millions of dollars worth of digital coins owned by individual investors but maintained in wallets at centralized exchanges. This is possible because digital coin traders access their cryptocurrencies held on public exchanges using public-key encryption. Public-key encryption is very secure and reliable, but there’s no telling whether the centralized exchange holding the associated private key is following all of the necessary security measures. And once cybercriminals have gotten into a centralized crypto exchange, there’s little that can be done to stop them from pillaging coin wallets until there’s nothing left.
Decentralized exchange users keep the private keys to their digital coin wallets. So, rather than trusting the company running the cryptocurrency exchange of your choosing to keep your funds safe, you can ensure your digital coins are protected. By simply following all of the proper best practices for private key management, you can make sure your assets are safe while you’re busy trading altcoins.
What Makes for the Best Crypto Exchange?
Decentralization is the newest wave in cryptocoin markets. However, that’s not to say that they trump centralized exchanges hands-down. In fact, there are benefits associated with both centralized and decentralized exchange sites.
Halo Platform offers a wide array of blockchain and cryptocurrency services, including both a centralized and a decentralized exchange, which are nearing completion. Our centralized exchange, HaloX, will be the best exchange for powerful analysis tools and easy transactions, while our decentralized exchange, HaloDEX, will operate trustlessly and without a central settlement party. Of course, both HaloX and HaloDEX will afford users full access to the cryptocoin market through a secure exchange. All in all, both HaloX and HaloDEX will offer unique benefits that any member of the cryptocurrency community can take advantage of. To find out more about what option is best for you, join the Halo Platform community at any one of the social platforms listed below.