Gradually i am learning many new things in the academy. Today i am going to test my understanding of task 5 . This task is about exchanges and wallets. I'll be doing below blockquoted question.

Explain in your own words what an Exchange is. Differences between a Wallet and an Exchange. Mention the advantages and disadvantages of DEX and CEX. Have you used an Exchange before? tell us about your experience.

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Explain in your own words what an Exchange is. Differences between a Wallet and an Exchange.

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An ecchange is a trading platform where traders buy /sell cryptocurrencies for other digital currencies or fiat and vice versa. The traders are charged certain amount of fee by the exchange for facilitating trade between market makers and takers. Cryptocurrency trade takes place in pairs and traders exchange one asset for other or fiat and vice versa. Multiple combinations of trading pairs are available on exchanges.

Exchanges facilitate different types of trades or orders like , Margin trade, spot-ordr , limit order, P2P etc. Each of these order types has some peculiarities that they offer and traders choose as per their needs.

Difference between Exchange and wallet.

Wallets are storage tools where as exchanges are market places. Wallets are just like our physical wallets in terms of function. Physical wallets store physical currencies whereas crypto wallet Store digital currencies. Crypto wallet are tools that secure funds with the help of keys. Keys are randomly generated alphanumeric combinations that represent cryptographic function meant to secure the funds. Each wallet has a public key or address to which funds are deposited just like a bank account number and a private keys. There are multiple types of private keys like seed key , private key and keystore file. Each of these keys has different specifications and are meant to perform more or less the same function of signing
the transactions and are therefore meant to secure the funds.

Although the exchanges have wallets attached to them but they are not ideally meant for storage of funds for long time. They can be used to store funds during trading periods. we must not try to store our spare funds on the exchange based wallets because they are susceptible to online hacking attacks.

Wallets are of different types like online wallet, offline wallet, hardware devices, single chain wallets and multichain wallet. Function of these wallets are clear by their names. Single chain wallet store either the single token or tokens of a particular blockchain where as multichain wallet store multiple token or tokens of multiple blockchains.

Exchange are of two types. Centralised exchange and decentralized exchange. On ceentralized exchanges the absolute authority is vested by the company that owns the exchange whereas on decentralized exchanges the absolute authority is holded by the user of the account. In former a trader does not have access to the private key whereas in later trader has access to the private key.

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Mention the advantages and disadvantages of DEX and CEX.

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Advantages of DEX

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• in decentralised exchanges like UNISWWP, WavesDex etc , there is no intermediary involved where as in centralised exchanges, third parties are involved.

• In decentralised exchanges, absolute authority lies in hands of traders where as in centralised exchanges absolute authority lies in hands of company that owns the exchange.

• In decentralised exchanges, trader is not bound by rules laid down by third party.

• Decentralized exchanges are superior than centralised exchangs in terms of security and transparency .

• While settings niche on decentralized exchanges , we need not share sensitive information like photo ID, bank id etc.

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Disadvantages of DEX.

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• Funds transferred to wrong addresses cannot be brought back as users can't be tracked from addresses.

• Liquidity and trading volume on decentralized is not as good as centralised exchanges because later have wider user base thsn former. Due to lower liquidity, time taken for executing trades is more.

• To set an exchange niche on Dex is complex than that on CeX.

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Advantages of CEX.

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• CEX like Binance, Kraken, Coinbase etc are more user friendly because setting exchange niche is very easy.

• Centralised exchanges have wider user base .

• CeX have higher trading volume and higher liquidity , therefore trading time is less.

• Overall operation lke deposition of funds, establishing contact wirh authorities, settling any problem etc is easy on CeX.

• Most of the Cex do refund in case of mishaps like hacks etc.

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Disadvantages of CEX.

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• Trader has to trust the third party involved in running exchange.

• Transaction are carried out with the help of password because users don't have access to the private keys.

• CeX are inferior to DeX in security and transparency.

• We need to share some sensitive information like bank details, phone numbers, photo id etc with the third party that owns exchanges.

• Trader has to follow rules set by central authority.

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Have you used an Exchange before? tell us about your experience.

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I am currently using two exchanges and they Binance and WazirX. But now, I'll be sharing
my experiamce about Binance.

• Binance has friendly user interface and setting an exchange niche is easy.

• Trading on Binance is so simple that i diddn't face any difficulty while using it first time.

• Binance executes trade rapidly which means liquidity is high for most of the trading pairs that i use to trade.

• There are scores of trading pairs and multiple combinations are available.

• Transaction fee on Binance is very less as compared to Wazirx .

• Binance supports most of the commonly used trading types and order type like market order, limit order , trailing stop order, margin trading, one-cancels-the-other order, P2P trading etc.

• Binance allows use of charts and indicators within the platform.

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^{Binance market and order types}

Thanks