Coinbase, the popular digital currency startup, just bought another exchange Paradex. The company is called a decentralized exchange or DEx. It is being claimed that DEx is safer than regular crypto exchanges. The affirmations come after more than $4 billion of digital currencies have been lost by crypto exchanges in thefts from 2011 and 2017.
In a traditional exchange platform, a client links investment in the bank account of an exchange which is eventually credit to customer’s account within few days. Afterward, the customers are able to buy and sell digital coins by using those funds. Meanwhile, the exchange maintains the security of those funds. The profit generated from the dealings can be transferred to the original bank accounts of the customer for final usage.
On the other hand, a decentralized exchange does not demand a client to link his funds with the exchange. Moreover, it trades the funds with the opposite party through the blockchain technology to settle the operation. The funds are traded through the decentralized exchange with a buyer or seller interested in client’s coins. The whole framework minimizes the risk involved with custody as no hacker can misuse them using the platform. It also decreases the burden on clients as they do not have to worry about security breachings.
Crypto exchanges have met with hackers throughout its short life. Earlier, one of the largest bitcoin exchanges of its time, Mt. Gox, lost millions in 2014 due to hacking. In 2017, two of the biggest exchanges of the world, both Chinese used some funds of its clients to buy wealth management services which led to a probe by the central bank.
According to Coinbase, its investment in Paradex will assist its clients in trading hundreds of coins in the future. It is to be noted that Coinbase currently serves more than 200 million users who will improve the activity levels in the token market.
But, on the other hand, critics are confused as a corporation has acquired a decentralized exchange. They believe that Paradex is eventually a centralized and singular entity. It takes orders from its customers to match perfect buy and sell prepositions and takes a percentage as its cut. As the dealings are conducted off chain, a public chain is not used for the operations.
The only downside with DEx is that a customer is not allowed to trade crypto tokens with any fiat currency even after stable coins are available that copy state-owned currencies. Nobody, but the clients are responsible for securing their funds. It simply means that a wallet is open for hackers as no authority is managing your account. In case of any miss-happening nobody but the client is to be blamed.
Experts believe that Coinbase has acquired DEx to increase its customer base and allow its customers to trade among themselves. Any person interested in investing in a decentralized exchange is advised to take care of their personal accounts. As of now, the SEC has not come up with any statement for a decentralized exchange but looking at the cynical outlook of the authority a new policy is expected to arrive soon.
