On July 6, Ethereum co-founder, Vitalik Buterin, blasted out at centralized crypto exchanges in an interview with TechCrunch journalist Jon Evans. Vitalik made it quite clear that he was a critic of what he termed as “stupid king-like power” saying these centralized exchanges controlled what cryptocurrencies “became big,” and were well known to extort money from crypto developers to get their digital coins listed. The Ethereum co-founder went on as far as to curse them off.
“I definitely personally hope centralized exchanges burn in hell as much as possible.”
Soon after Vitalik made these remarks, Binance CEO and founder, Changpeng ‘CZ’ Zhao, took to Twitter to fire back at Vitalik, (it is important to note that Binance is a Centralized crypto exchange).
“There is no absolute decentralization. Projects with core teams still have centralization. Today, Vitalik probably has more king-like powers than anyone else in this industry, and has used it, by serving as advisors to projects, therefore helped to decide their fate, at least fate of their ICOs to a large extent,”
Buterin on a different forum, answering to a French cryptocurrency exchange Blockchain.io about their decentralized settlement feature made more remarks about the decentralized and centralized crypto exchange issue:
“It’s much better than a fully centralized exchange, but it doesn’t solve the other problem, as centralized exchanges have a lot of control over the market and can choose which currencies become the most popular etc etc. In all, I think this is a very good idea and I hope that more cryptocurrency exchanges will use this semi-centralized method.”
What Are Centralized And Decentralized Exchanges?
Centralized crypto exchanges are what we typically think of when we hear of crypto exchanges, this is because big names like Binance, Coinbase and Kraken are centralized exchanges. The idea is, they are the point of contact for both the buyer and the seller, the buyer sends their money into the accounts of the crypto exchange and the seller surrenders their crypto to the exchange, then the exchange conducts the swap -at a cost of course. Although these types of exchanges are straightforward, they require trust, users have to trust that the exchange will not run off with their funds and/or digital assets. It also means that if the exchange is offline -say for maintenance reasons- this could greatly affect a lot of people who would like to trade, and possibly market prices.
Decentralized crypto exchanges (DEX’s) on the other hand, offer something quite different. For starters, they only offer crypto to crypto trading and are built in such a way that you don’t have to surrender your crypto to the exchange but you can still trade with other users.
Instead of having an intermediary who takes fiat or crypto from one person and sells it to another on behalf of the two parties, decentralized exchanges use software to match buyers and sellers, then they can agree on the terms and prices. Decentralized crypto exchanges use blockchain technology to make and follow transaction, making it fast, efficient and safe.
Decentralized crypto exchanges are thought of as safer than centralized since there are no central accounts where cryptos are stored, making them even less prone to hacks.
Centralized crypto exchanges have more liquidity; which is largely because decentralized exchanges are not widely adopted and market makers are more attracted to centralized exchanges.
Again, due to less adoption, transacting on decentralized crypto exchanges takes longer since it takes a long time to find a buyer or seller who matches your order. However, in a centralized, this process is considerably shorter.
User experience has remained a major concern for decentralized exchanges since they do not have nearly as much funds as centralized exchanges and the little they make is used for system maintenance and upgrades.
Although these two crypto exchanges are different in their own unique ways, it is important to note that they can co-exist together and pretty much compliment each other, creating what is dubbed as ‘semi-centralized.’ Semi-centralized crypto exchanges although operate as centralized crypto exchanges, do not store cryptocurrencies in a central server/account. Many experts believe that this model is what many crypto exchanges will adopt in the near future, and true enough, major crypto exchanges like Binance have already announced they will be launching a decentralized exchange. Coinbase has also bought a decentralized crypto exchange which it says will help it streamline its operations.