Get to know what is DEX (Decentralized Exchange)

Bittime - The crypto world continues to innovate, and one of the interesting innovations is the presence of Decentralized Exchange (DEX). In contrast to conventional crypto exchange platforms, DEX offers a trading experience that is more decentralized and free from intermediaries. 

This article will invite you to dive into the world of DEX, starting from its meaning, history, how it works, to various things you need to consider before using it.

What is DEX (Decentralized Exchange)?

Decentralized Exchange (DEX) is a crypto asset exchange platform that operates in a decentralized manner. This means that DEXs do not have a central entity that controls the platform and transactions. In DEX, users connect directly with each other to buy and sell crypto assets, without the need for intermediaries like conventional crypto exchanges (CEX).

DEX History

The DEX concept was born from the desire to create a financial system that is more open, transparent, and resistant to censorship. The emergence of DEX began with the launch of platforms such as Bitshares in 2013 and EtherDelta in 2016. Since then, DEX has continued to develop with various innovations and technological improvements.

The concept of decentralized finance (DeFi) and its main pillar, DEX, can be traced back to the early days of Bitcoin. Although Bitcoin introduced the revolutionary idea of ​​a decentralized digital currency, digital asset trading initially relied on centralized platforms. These platforms, often referred to as centralized exchanges (CEX), act as intermediaries, holding user funds and facilitating trading.

However, the inherent risks associated with CEXs, such as security breaches, counterparty risks, and regulatory hurdles, are driving the search for more decentralized alternatives. The visionaries behind early cryptocurrencies recognized the need for a trading platform that aligned with the core principles of blockchain technology: decentralization, transparency, and user control.

How DEX Works

DEX operates using blockchain technology and smart contracts. Transactions that occur on DEX are recorded and validated by the blockchain network, thereby ensuring security and transparency. Here's a brief overview of how DEX works:

1. Crypto Wallet Installation: Users connect their personal crypto wallets to the DEX.
2. Selecting Trading Pairs: The user selects the crypto asset he wants to buy and the crypto asset he will use to buy (trading pair).
3. Order execution: Users place buy or sell orders according to the selected trading pair.
4. Smart Contract: The order is executed via a smart contract that has been defined on the blockchain.
5. Transaction Matching: The DEX system automatically looks for other users who want to make the opposite transaction, so that a buy-sell agreement occurs.
6. Recording transactions: Successful transactions are recorded and validated by the blockchain network.

Types of DEX

DEX comes with a variety of different working mechanisms. Here are some types of DEX that are commonly found:

• Automated Market Maker (AMM): This type of DEX uses smart contracts and liquidity pools to facilitate transactions. Users deposit their crypto assets into a liquidity pool, and the DEX will automatically determine the price based on an algorithm.
• Order Book DEX: This type of DEX is similar to conventional crypto exchanges, where users can place buy and sell orders at prices determined by themselves. The DEX system will then look for suitable orders from other users.

DEX vs. OC

It is important to understand the difference between DEX and CEX (Centralized Exchange).

• DEX: Decentralized crypto asset exchange platform, without intermediaries.
• CEC: Conventional crypto asset exchange platforms controlled by a central entity, users must submit their crypto assets to the platform to carry out transactions.

Advantages and Disadvantages of DEX vs CEX

Advantages of DEX

• Decentralized: Users have complete control over their crypto assets and do not need to trust third parties.
• Transparency: All transactions are recorded and publicly accessible on the blockchain.
• Security: The risk of being hacked is lower because there is no central entity to target the attack.
• Accessibility: Generally does not require a Know Your Customer (KYC) verification process.

Lack of DEX

• Limited Liquidity: Some DEXs may have limited liquidity, affecting the smoothness of transactions.
• Interface May Be Difficult: The DEX interface can be more complicated than CEX, especially for new users.
• Transaction Speed: Transaction speeds on DEX can be slower than CEX.

Advantages of CEX

• High Liquidity: Generally have greater liquidity, allowing large transactions at more competitive prices.
• User Interface: Usually has a more user friendly interface.
• Transaction Speed: The transaction process is generally faster than DEX.
• Additional Features: Often offers additional features such as margin trading, futures, and options.

Lack of CEX

• Decentralization: Users hand over control of their crypto assets to the platform.
• Security: Vulnerable to hacking attacks and theft of funds.
• Regulations: Bound by strict financial regulations, which may limit service in some countries.
• Transaction Fees: Typically charge higher transaction fees than DEXs.

Choosing the Best DEX

Choosing the right DEX depends on your needs. Some things to consider:

• Types of cryptoassets to trade: Make sure the DEX supports the crypto asset you want.
• DEX reputation and security: Choose a DEX that has a good reputation and has adequate security features.
• DEX Liquidity: The higher the liquidity, the smoother transactions can be carried out.
• Transaction fees: Pay attention to the transaction fees charged by DEX.

Is DEX Safe?

Even though DEXs offer a higher level of security than CEXs, users still need to be vigilant. The decentralized nature of DEXs does minimize the risk of centralized attacks, but vulnerabilities remain. The smart contracts at the heart of DEXs can become targets of attack if there are security holes in their code. 

Apart from that, users must also be proactive in maintaining the security of their assets by storing private keys safely and always updating the software. However, the high transparency of DEXs allows users to verify each transaction independently, thereby increasing confidence in the security of the platform. 

However, it is important to remember that no system is completely immune to attack. Therefore, asset diversification and selecting a reputable DEX are important steps to minimize risk.

How to Buy Crypto on Bittime

You can buy and sell crypto assets easily and safely via Bittime. Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti. 

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also ensure you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. Study Complete Guide How to Buy Crypto on Bittime. 

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