Centralised or decentralised?


As the popularity of bitcoin and other block-chain based cryptocurrencies continue to grow, so do the different ways to access and trade these currencies. Online platforms known as "Exchanges" allow people to trade on cryptocurrency for another or trade from cryptocurrency to fiat currency similar to a currency, commodity or stock exchange. Cryptocurrency exchanges are generally divided into two types: centralised and de-centralised exchanges

For those potentially considering investing into cryptocurrencies, understanding the difference between the exchange types, as well as the potential risks involved with de-centralised exchanges is important.

Centralised exchanges allow users easy access and exposure to cryptocurrencies and serve as a third party in transactions, with some offering technical support and assistance. Due to its liquidity, offered support and ease of use, centralised exchanges have proven popular with users. De-centralised exchanges conduct direct peer-to-peer trades without intermediaries, whereby the exchange serves as a meeting point for users to initiate their own trades. This allows users to retain greater autonomy in the transaction process. 

However, the state of de-centralised exchanges is that where functionality is still relatively basic in comparison to centralised platforms. This means that these de-centralised exchanges can often be inflexible and difficult for inexperienced users to operate. Coupled with the lack of professional user support and liability, makes it an intimidating option. Another potential risk associated is that due to the lower trading volume and frequency relative to centralised exchanges. Low liquidity could make the assets on de-centralised platforms more difficult to sell at the market price if there is no suitable buyer match. This volatility can cause significant fluctuations in price. Due to the aforementioned factors, inexperienced cryptocurrency traders may likely be more exposed to the risks associated with centralised exchanges, than highly experienced traders. 

Emilie Gallaugher