Cryptocurrencies and blockchain are developing and being known by a lot of people, not only by businessmen and investors but even average people. The rise of cryptocurrencies opened many doors to the digital economy.
Crypto exchanges, on the other hand, played an important role in the blockchain and cryptocurrency industry. A crypto exchange gives you the capability to trade your digital assets or cryptocurrencies to other currencies or digital assets. There are two types of crypto exchange and up until now, the debate is still ongoing on which is better ‒ centralized or decentralized currency system?
Before deciding what to choose, let’s dive in and find out what’s the difference between the two, the pros and cons and how it can affect the financial globalization?
Most investors go for the centralized system as they believe that it is one of the most important tools when buying or selling assets or cryptocurrencies. This is because it offers convenience, safety, and security.
In a centralized system, all the transactions go through a middle or third party. It is owned and managed by a company which is similar to how a bank operates. They have control over all the transactions going in and out. Buyers, sellers, and traders trust the service and allow them to hold their assets. They monitor all the transactions and provide the owners with a copy so they can keep track, as well.
Centralized System Pros and Cons
In the centralized system, there is an owner, a safe, terms and conditions and rules and regulations. Using a centralized platform is a good option for people who can’t do monitoring on their own. However, there are pros and cons for the centralized system.
- Allows to directly exchange on another Fiat or Currency.
- Easy to use and user-friendly
- The centralized system has a higher trade volume.
- Offers other services, promotions, and discounts.
- Offers direct transfer and payment option to another currency or fiat
- They offer high functionality, large trading, and large financial data.
- Most centralized system platforms are regulated by the government which means it is legal.
- A centralized system is conveniently offering safety and security. Instead of doing it by yourself, they will do it for you.
- It shows transparency for all transactions including time, date, amount, location, etc.
- Centralized system platforms offer insurance to their members. That means if anything goes wrong, they will assist you and you will get something back.
- The government can interfere with the centralized system. Some countries already banned or prohibited the system.
- The privacy is limited as you will be required to do the sign-up process which means they will know all the important information about you.
- The risk of identity theft is high.
- There is a risk for security and safety since the transactions are all online and the fact that no centralized system is guaranteed safe for the hackers.
Unlike the centralized system, this concept is new to all. The particular reason why some crypto owners, traders, and seller prefer decentralized system is security. There are lots of issues where crypto exchange platforms have been hacked and almost all the members who maintained their assets in the exchange platform loss their assets. Even though a centralized system has a lot of security measures and precautions, hackers are unstoppable.
The decentralized system eliminates the middleman and the cryptocurrency transaction is made possible with the help of the blockchain. Blockchain keeps track of the ownership ‒ agreeing is exclusive for both parties. This also allows the owners to secure their cryptocurrencies.
Decentralized System Pros and Cons
Just like the centralized system, the decentralized system has its pros and cons. To help you decide which system to choose, here are the pros and cons of the decentralized system.
- Rather than trusting a third party, or middleman for your cryptocurrencies, you can take care of it on your own using wallets. Some people are more comfortable keeping it by themselves.
- The privacy level is very high as all the transactions are being done anonymously.
- Exclusive exchange for cryptocurrency for both parties ‒ making it safer.
- The decentralized system has a lower risk for hacker’s attack. Since cryptocurrencies are being stored offline, hackers cannot attack. The only time that you will go online is when making the transaction. It’s hard for hackers to do their job with that timeframe.
- Since the decentralized system is independent and distributed worldwide, the government cannot interfere with it.
- The decentralized system has an exclusive cryptocurrency exchange.
- The decentralized systems have a lot of steps to do the transactions and it doesn’t have simple user-interface.
- It has limited functionality and only cryptocurrencies are accepted. Other digital assets are not yet possible to transact at the moment.
- All the transactions are uninsured and don’t offer additional services, discounts, and promotions.
How Does It Affect Financial Globalization?
There are positive and negative effects of the centralized and decentralized system to financial globalization. We are more familiar with the centralized system ‒ a great example is how the banks operate. Many people, other business and even local governments are experiencing the positive effects of it. However, the hacker's threat is what they are fighting with 24/7 and if something like that happens, it could affect all the other people and businesses around it.
On the other hand, decentralization disproportionately has a positive impact on other countries in terms of economic efficiency, financial globalization and overall improvement of the country. However, the decentralized system brings a negative impact on other businesses, especially to some local government. Which is why some countries banned the transactions using a decentralized system.
It’s confusing and hard to decide what to choose between the two as they have their pros and cons. If you own a big amount of assets or digital money, you might choose the decentralized system. If you just have enough and wants convenience, then go for the centralized system.
Maybe, you can also do both by placing a small amount for assets to the centralized system and the remaining large amount will be in the decentralized system. It’s up to you but definitely, go for whichever makes you comfortable.