We live in a centralized world, which means that there’s always a single entity pulling the strings. Our fiat money is a centralized type of currency that is controlled by a central bank. But it’s not just our money that’s centralized. Our companies, and even our entire countries, are part of this structure. Sure, there’s a hierarchy, but it always comes down to one or several people who’ll decide what to do.
In the finance world, centralization was heavily challenged with the introduction of Bitcoin, which was the first decentralized currency, often referred to as cryptocurrency. After Bitcoin, many other variations of cryptocurrency appeared on the web, offering a decentralized payment option.
Let’s see what a decentralized currency really is and explore how blockchain affected the way we perceive money and trading.
What Is Decentralized Currency?
Essentially, decentralized currency is a type of money that doesn’t require you to have a third party making the transaction. For example, if you send centralized fiat currency to another person, or if you’re just making a payment, your money will be processed by your bank, your credit card, or your e-wallet, which is a centralized organization.
Cryptocurrency, such as Bitcoin, is decentralized. When a transfer takes place between you and the receiver, it’s direct. It’s peer-to-peer. Therefore, no bank regulates or meddles with bitcoin or any other decentralized cryptocurrency. Instead, this currency is part of a decentralized network supported by blockchain technology.
We’re not going to explain how this underlying software makes this cryptocurrency decentralized. If you’re interested in learning more, you can check out this great article.
All you have to know is that there’s no single entity dictating the rules regarding Bitcoin or any other similar decentralized cryptocurrency. Bitcoin and altcoins are different from dollars, euros, pounds, or any other type of fiat money.
But is Bitcoin really decentralized? There are certain obstacles that some people who want to invest in cryptocurrencies don’t like.
Is Bitcoin a Decentralized Cryptocurrency?
Bitcoin is decentralized. Its network is distributed to computers all over the world that support it. They are part of BTC’s blockchain network, and those who devote their computers to his activity are said to be mining or farming. A “miner” is a person whose device is part of the blockchain and helps facilitate every transaction that takes place in it. Moreover, every device records an encrypted trace of the transaction which is, therefore, written in a distributed ledger.
However, the main obstacle towards decentralization that Bitcoin and every other decentralized cryptocurrency are now facing is centralized exchanges.
Therefore, let’s check out what a centralized exchange really is and whether there’s an alternative to it.
What Is a Centralized Exchange?
A cryptocurrency exchange is an online platform that lets you trade digital currencies. Every user can buy or sell the cryptos for a certain price by placing orders. The main issue is that many online cryptocurrency exchanges are not decentralized. In other words, they are operated by a centralized company.
For many true supporters of decentralized cryptocurrencies, these exchanges are not an option. The fact that your cryptocurrency is decentralized doesn’t mean much if you have to register on a centralized platform to trade them.
Why would someone make so much fuss about it? Well, the whole idea of a decentralized cryptocurrency is to stay anonymous, safe, and secure. Once you open an account on a centralized exchange, you’ll have to reveal your personal information. That’s why they avoid it.
Luckily, there are some great decentralized exchanges (DEX) out there. Let’s see how they work.
Is a Decentralized Exchange a Better Option?
Decentralized exchanges aren’t as popular as their centralized counterparts. They are often more complex and attract experienced investors who feel comfortable enough to use them.
While using such a platform, you are not obligated to reveal any info about you and your bitcoin trading activity. It allows you to remain anonymous while trading.
One of the most significant differences between centralized and decentralized exchanges is in the cryptocurrencies they offer. Most of the centralized exchanges support only a small amount of popular cryptocurrencies. That’s not the case with decentralized exchanges where you can trade hundreds of available cryptos, in addition to Bitcoin.
If you’re a new investor, you probably want to invest in Bitcoin first. However, once you learn how trading works, you’ll want to go beyond digital gold and seek value in other, less popular cryptocurrencies. This is why a decentralized exchange is a better option.
Fiat/Cryptocurrency Pairs — Not Possible in Decentralized Exchanges
A decentralized exchange has a few disadvantages compared to its centralized counterpart. The major disadvantage is that DEX exchanges don’t support fiat currency. In other words, you won’t be able to buy Bitcoin (or other cryptos) using USD or any other type of fiat money.
If you’re new to the world of crypto trading, the only way to obtain cryptocurrency is to open a wallet and have someone send it to you or join a centralized exchange. However, if you already have a cryptocurrency, you should consider joining a DEX and begin your crypto journey that way.
At the same time, most of the disadvantages are not major. For example, DEX platforms often don’t have a user interface that is as sophisticated as the interface offered by platforms operated by a centralized organization. One of the decentralized exchanges that paid a lot of attention to the user interface is Godex. Put differently, even if you’re new to the crypto trading world, you won’t find it difficult to get around this decentralized exchange and start trading Bitcoin and other cryptocurrencies. Godex currently offers more than 200 cryptos and it takes just a couple of minutes to make your first trade. Being decentralized, this platform will not request any personal info. In fact, you don’t even have to open an account. All you have to do is provide your wallet address.
Final Thoughts: Become Fully Decentralized
Bitcoin and every other decentralized cryptocurrency are part of a centralized world, so it’s no wonder that they still have a long road to travel before this feature of theirs could reach its full potential.
As a crypto trader, the least you can do is choose a decentralized exchange over a centralized one. That way, you’ll remain anonymous, safe, and secure. Therefore, feel free to open an account on one such platform and start learning the art of cryptocurrency trading.