Crypto 101: Journeying Into the World of Decentralized Exchanges (DEXs)
A crucial part of the crypto world, decentralized exchanges, or DEXs, enable traders to transact directly with each other without the need for intermediaries like banks or traditional exchanges. Instead of relying on a central authority to oversee and authorize transactions, DEXs utilize blockchain technology to facilitate and validate peer-to-peer trades.
Key characteristics of DEXs:
- Peer-to-peer trading 🤝: In a DEX, the trading process involves a direct exchange between two parties.
- Non-custodial 💼: DEXs do not hold your funds. Instead, you retain complete control of your assets.
- Operates using smart contracts 🤖: Trades are executed and facilitated through smart contracts, self-executing contracts with the terms of the agreement directly written into the code.
The Inner Workings of DEXs
DEXs operate on blockchain networks that support smart contracts, such as Ethereum and Binance Smart Chain ($BNB). When a trade is initiated on a DEX, the platform’s smart contract kicks into gear, automatically executing the transaction following its predetermined set of rules. This ensures that the terms agreed upon by both parties are adhered to without the need for trust or the oversight of a third party.
💡Remember: In a DEX, the platform itself never comes into contact with your funds. Everything is managed within the blockchain through the smart contract!
Advantages of DEXs: Trading with Freedom and Privacy
Decentralized exchanges bring a host of unique advantages to the table: