central exchange

What are Centralized Exchanges

Cryptocurrencies have sent shock waves through the old economy not seen since the invention of the personal computer. Every day brings tales of fortunes made and lost, more businesses adapting to the virtual currency model and more stories about pending regulation and contradictory stories about a rosy, regulation free future. It's tough to know what to believe, but one thing is certain: at the moment crypto is the hottest commodity on earth. And in spite of some rough patches, it doesn't seem like it's going to cool down anytime soon. As such one of the most common questions swirling around the cryptocurrency revolution is this: How do I get some

Obtaining Bitcoin and Other Cryptocurrencies...

There are two ways you can acquire Bitcoin or any of the nearly 1,400 copycat cryptocurrencies in circulation today. You can either mine them, or you can acquire them through an exchange. Mining is an incredibly involved process that requires you to:

  • Purchase one of the latest mining rigs (computer hardware built especially for the job).
bitcoin put on the wallet
  • Obtain a wallet where youll be able to store the public and private keys that both protect your coins and enable their use.
  • Find a mining pool to join so you can combine your processing power with others to harvest more Bitcoins (you could go it alone but believe us you dont want to).
  • Pick up the latest mining software and install it on your computer.
  • Hook the rig up to your computer and get to work. 

The thing about mining is that it devours electricity like anteaters devour ants. You may even find that youre spending so much on electricity that its impossible for you to mine enough Bitcoin or other cryptocurrency to make your efforts profitable. On the plus side, you get to keep what you mine without having to pay any fees or join any exchanges.

Exchanges, on the other hand, are like a warm summer breeze compared to mining. Just set up a wallet, open an account and start buying and trading. The advantage of the exchange is its simplicity. The disadvantage is that you'll be charged fees and exchanges are vulnerable to hacks, which could wind up cleaning you out.

Up Against Its Counterpart

handful of cryptocurrencies

A decentralized exchange is the more complex to interact with but also more secure. With this type of exchange, the private and public keys never leave your computer until the transaction commences. There's no reason to have a third party act as an intermediary holding your crypto: all transactions are person to person. As such it's much less likely you'll lose money to a hack although transactions, as we said, tend to be more complex and take longer to process. 

PROS

  • Less prone to hacks these days than centralized exchanges.
  • The user maintains direct control over their crypto funds.
  • A fairly high degree of anonymity (though this may be changing).
  • No trading fees so more in keeping with the crypto guiding principles.
  • Typically no personal identification needed.

CONS

  • A pretty steep learning curve for the uninitiated.
  • A small number of features.
  • Not able to accommodate fiat currencies.
  • Your personal computer is more vulnerable to being hacked.

What You Need to Know About Centralized Exchanges:

corporate man holding a btc

At the other end of the spectrum are centralized exchanges. Centralized exchanges are popular for a very simple reason: theyre easy to use and incorporate traditional fiat currencies into the equation. You can exchange your dollars or euro directly for Bitcoins or Litecoins or whatever and vice versa; you can exchange your Bitcoins for dollars or whatever currency you prefer. The problem most cryptocurrency users have with centralized exchanges are that they tend to be contrary to the anything goes, no fee principles behind the birth of cryptocurrencies.

Centralized exchanges are openly for-profit enterprises that charge transaction fees for among other things, providing access to the blockchain. Still, if people didn't appreciate how convenient they made transactions, they'd fold up pretty quick. But they don't because less orthodox crypto fans don't really give a tinker's cuss about egalitarianism. They want to turn a profit. And centralized exchanges provide them with more ways to do that than decentralized exchanges, which only allow crypto to crypto transactions. So until something better comes along the centralized exchange is likely to slog on, absorbing criticism while they count their money.

PROS

  • Plenty of ways to trade including the use of fiat currencies.
  • Relatively easy to use for the average tech-savvy person.
  • Lots of advanced tools.
  • Plenty of liquidity.
  • Most will assume at least some liability for hacked funds.

CONS

  • The exchange exerts control over your funds.
  • Fees, fees, fees
  • A low level of anonymity.
  • More prone to hacking these days than decentralized exchanges.
  • Possibility of downtime because of the centralized structure.
  • Did we mention fees

Are There Security Issues?

anti hacked online security

Theres one significant downside to centralized exchanges that calls out for more elaboration it is their troublesome habit of being hacked and losing everyone's money.For instance, in January 2018 a centralized exchange in Japan called Coincheck acknowledged it had been hacked and that approximately $500 million worth of a cryptocurrency called NEM was stolen from customers.

The company has said it is investigating and has suspended some services on the site.

​In fairness though, its not just centralized exchanges that have been hacked. For instance, a Bitcoin exchange called Mt. Gox was hacked in 2014 with the cyberthieves making off with $450 million worth of the cryptocurrency ($7 billion using todays valuations). The Mt. Gox hack was a wakeup call for many decentralized exchanges and since then security has been significantly tightened with most hackers now going after centralized exchanges, personal wallets and even mining hardware via malicious downloads.

Our Final Conclusion

The centralized exchange will likely linger as a fixture of the crypto universe for some time, especially if they can get their security act together. By providing the ability to exchange crypto for fiat they provide a means of acquiring cryptocurrency decentralized exchanges simply can't. Not yet anyway. 

What are Centralized ExchangesCryptocurrencies have sent shock waves through the old economy not seen since the invention of the personal computer. Every day brings tales of fortunes made and lost, more businesses adapting to the virtual currency model and more stories about pending regulation and contradictory stories about a rosy, regulation free future. It's tough to know what to believe, but one thing is certain: at the moment crypto is the hottest commodity on earth. And in spite of some rough patches, it doesn't seem like it's going to cool down anytime soon. As such one of the most common questions swirling around the cryptocurrency revolution is this: How do I get someObtaining Bitcoin and Other CryptocurrenciesThere are two ways you can acquire Bitcoin or any of the nearly 1,400 copycat cryptocurrencies in circulation today. You can either mine them, or you can acquire them through an exchange. Mining is an incredibly involved process that requires you to:Purchase one of the latest mining rigs (computer hardware built especially for the job).Obtain a wallet where youll be able to store the public and private keys that both protect your coins and enable their use.Find a mining pool to join so you can combine your processing power with others to harvest more Bitcoins (you could go it alone but believe us you dont want to).Pick up the latest mining software and install it on your computer.Hook the rig up to your computer and get to work.The thing about mining is that it devours electricity like anteaters devour ants. You may even find that youre spending so much on electricity that its impossible for you to mine enough Bitcoin or other cryptocurrency to make your efforts profitable. On the plus side, you get to keep what you mine without having to pay any fees or join any exchanges.Exchanges, on the other hand, are like a warm summer breeze compared to mining. Just set up a wallet, open an account and start buying and trading. The advantage of the exchange is its simplicity. The disadvantage is that you'll be charged fees and exchanges are vulnerable to hacks, which could wind up cleaning you out.The Decentralized ExchangeA decentralized exchange is the more complex to interact with but also more secure. With this type of exchange, the private and public keys never leave your computer until the transaction commences. There's no reason to have a third party act as an intermediary holding your crypto: all transactions are person to person. As such it's much less likely you'll lose money to a hack although transactions, as we said, tend to be more complex and take longer to process.ProsLess prone to hacks these days than centralized exchanges.The user maintains direct control over their crypto funds.A fairly high degree of anonymity (though this may be changing).No trading fees so more in keeping with the crypto guiding principles.Typically no personal identification needed.ConsA pretty steep learning curve for the uninitiated.A small number of features.Not able to accommodate fiat currencies.Your personal computer is more vulnerable to being hacked.The Centralized ExchangeAt the other end of the spectrum are centralized exchanges. Centralized exchanges are popular for a very simple reason: theyre easy to use and incorporate traditional fiat currencies into the equation. You can exchange your dollars or euro directly for Bitcoins or Litecoins or whatever and vice versa; you can exchange your Bitcoins for dollars or whatever currency you prefer. The problem most cryptocurrency users have with centralized exchanges are that they tend to be contrary to the anything goes, no fee principles behind the birth of cryptocurrencies.Centralized exchanges are openly for-profit enterprises that charge transaction fees for among other things, providing access to the blockchain. Still, if people didn't appreciate how convenient they made transactions, they'd fold up pretty quick. But they don't because less orthodox crypto fans don't really give a tinker's cuss about egalitarianism. They want to turn a profit. And centralized exchanges provide them with more ways to do that than decentralized exchanges, which only allow crypto to crypto transactions. So until something better comes along the centralized exchange is likely to slog on, absorbing criticism while they count their money.ProsPlenty of ways to trade including the use of fiat currencies.Relatively easy to use for the average tech-savvy person.Lots of advanced tools.Plenty of liquidity.Most will assume at least some liability for hacked funds.ConsThe exchange exerts control over your funds.Youll probably have to produce identification to join.Fees, fees, feesA low level of anonymity.More prone to hacking these days than decentralized exchanges.Possibility of downtime because of the centralized structure.Did we mention feesThe Security IssueTheres one significant downside to centralized exchanges that calls out for more elaboration it is their troublesome habit of being hacked and losing everyone's money. For instance, in January 2018 a centralized exchange in Japan called Coincheck acknowledged it had been hacked and that approximately $500 million worth of a cryptocurrency called NEM was stolen from customers. The company has said it is investigating and has suspended some services on the site.In fairness though, its not just centralized exchanges that have been hacked. For instance, a Bitcoin exchange called Mt. Gox was hacked in 2014 with the cyberthieves making off with $450 million worth of the cryptocurrency ($7 billion using todays valuations). The Mt. Gox hack was a wakeup call for many decentralized exchanges and since then security has been significantly tightened with most hackers now going after centralized exchanges, personal wallets and even mining hardware via malicious downloads.ConclusionThe centralized exchange will likely linger as a fixture of the crypto universe for some time, especially if they can get their security act together. By providing the ability to exchange crypto for fiat they provide a means of acquiring cryptocurrency decentralized exchanges simply can't. Not yet anyway.

About the Author Aaron Grubbs

follow me on:

Leave a Comment: