The cryptocurrency system currently faces some changes in that parties are somewhat reliant on third parties when it comes to exchanging currencies. This reliance comes with challenges such as long waiting periods and a reduction in monies owing to commissions charged by companies.

A decentralized system offers promise to the industry such that parties can deal with each other directly and it further enhances security and confidentiality in transactions. Below, take a look at the variations between this system and the centralized system and why the former is a good fit in the exchange of virtual currencies.

The centralized way


Many establishments are yet to look at virtual currencies as a means of exchange, and as such, holders of such funds require mediums in which they can change their digital cash to real-world currencies. Companies are in place to act as the third parties in such transactions and what they do is that they match offers between sellers and buyers on the market.

Take an example where person A wishes to sell their cryptocurrency; they will input what they have and for how much and the company will look into whether there are such offers by buyers. Sometimes, buyers cannot find what they want on the site and will create their offers to which sellers can respond. Once two proposals on the site match, the company will then process the money and handle any disputes that arise.

The con to this process is that the payouts take a long time as there is a lot of verification involved. The companies also charge users for their services, and at times, the fees involved can be high such that they reduce the profitability of the venture. Another thing about this system is that there is a lot of money involved as well as lots of information and this makes the system vulnerable to hackers. There have been a few reports on such incidences in the past where hackers accessed the system to derive information about users. The government can also exercise control over operations in such a system, thus making it inconvenient for people wishing to hide their identities. These downsides pushed users into looking for other ways in which they could exchange their currencies, thus resulting in the decentralized system.