Decentralized crypto exchanges (DEXs) are becoming more popular each day. We are seeing an increased number of them developed to facilitate crypto transactions and trading. This type of exchange is based on the fundamentals that cryptocurrencies such as Bitcoin were built on – they use a decentralized technology to ensure that there is no middleman and no centralized control of finances. They act as platforms that simply connect people with each other to execute trades.
Centralized cryptocurrency exchanges overview up until now have been the norm. They act in a similar way to banks and financial authorities – they take control of funds during transactions and require registration. While these websites have a lot of attractive features, have solid trading volumes, and offer some advanced tools, they are still quite risky. Decentralized exchanges are gaining more limelight, particularly due to their enhanced security. This type of crypto platforms is much harder to hack for a number of reasons.
Decentralized server hosting
One of the main security features is the way that decentralized exchanges are hosted. Hosting plays an integral role in the security process. As you will see below, this form of exchange is usually hosted in such a way that makes it extremely difficult for hackers to access information.
Servers around the world
As you would expect, this form of crypto exchange has a decentralized hosting process. They will use either decentralized hosting or cloud hosting. Information is hosted on numerous servers around the world. This means that the likelihood of a hacker infiltrating every server and bringing down the service is slim to none.
The other method of hosting is cloud technology. This takes the whole concept of decentralization a step further and offers heightened security. Cloud hosting uses a network of hundreds or thousands of servers, which means that the exchange data will not be kept in one single point at any one time. If hackers tried to infiltrate a cloud-hosted exchange, they would only find small snippets of information.
No single point of failure
The whole concept of decentralized exchanges revolves around having no single point of failure. In centralized exchanges, if a server is hacked, the whole system will go down. Furthermore, as the user’s info and cash are stored centrally, it could also cause access issues and huge security vulnerabilities. A decentralized exchange ensures that a hacker can’t simply topple the whole system via one entry point.
Another main factor in security is the way that users interact with the exchange and how their cryptocurrencies are handled. Decentralized platforms prevent situations of hackers finding customers’ information.
Users maintain their crypto
In a centralized exchange, the service itself takes ownership of coins during the transaction process. This means that a hacker could simply hack into the exchange and steal funds from thousands of customers. In a decentralized exchange, however, it’s users who keep their funds until the transaction has been agreed. If a hacker managed to break into the servers, there would be no funds present anyway.
Another main feature of this type of crypto exchange is that users do not have to register an account or give their personal details. On many decentralized platforms, you can actually trade currencies without creating an account; you can even provide a false name. In contrast, traditional services ask you to give correct details such as your name, address, and a contact number.
With a reduced amount of information, there are fewer reasons for hackers to attack decentralized servers. Hackers often target personal data.
DEXs mainly use smart contracts to facilitate transactions. They are extremely secure, as they use encryption and the blockchain technology.
There have been incidents of decentralized exchanges being hacked, but the examples are very few. In comparison to this, there are many notorious cases of centralized exchanges being hacked. Back in 2011, for example, Mt. Gox was hacked for 2,609 Bitcoins; and the incident happened again in 2014, causing a loss of over 750,000 BTC. Earlier this year, in January, Coincheck lost a staggering $534 million USD due to outdated security measures. These platforms are still vulnerable to hacks, and there’s no end to the
As you can see, the way that decentralized exchanges work enhances security. This form of cryptocurrency service is much harder for hackers to access. At the moment, DEXs also benefit from their rather small popularity. Hackers would much prefer to target larger websites that have billions of USD in circulation. However, this could change in time, as this approach continues to grow in popularity. People are likely not to disclose their personal data while dealing with crypto, and, obviously, the level of security is an issue of vital importance. That’s why we can expect the rise of decentralized exchanges in the near future. With more users realizing their advantages, DEXs will increase their trading volumes and become dominant on the market.
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