In the intention of enabling trading within the platforms of these centralized exchanges, mediators like companies perform as a middle man. In return, mediators ask for fees for furnishing the service, weighed on each individual trade which had occurred. Recently there were burst of brand new fresh tokens arriving to the market. Most of them come predominately from ongoing ICOs (Initial Coin Offerings) and correspondingly clear majority of these persons do look for liquidity. It’s these centralized exchanges which present themselves as the initial players most of the time, for freshers who have started to get interested on cryptocurrency. They usually would prefer a functioning environment which enables the token holders to connect their cryptocurrency trading to real-world economy. This kind of exchanges do have the capability to give this option for them which makes the life harder for upcoming decentralized exchanges.The centralized exchanges function identically to general stock exchanges. But the difference is, it allows the trade of crypto based assets. More recently following stricter regulations by government agencies, the obscure security protocols of centralized cryptocurrency exchanges have been bit confusing. Most of them slowly reducing the frequency listing tokens generated from ICOs as they usually have done. So, the hysteria started to grow among token holders and to become token holders, as they may not be allowed to find buyers and sell tokens via these exchanges anymore. Then arises the factor, non-liquidity; which can lead to major disaster in the market not only by disintegrating centralized exchanges and their corresponding tokens, but it could also decay the good health of upcoming decentralized players and make them pay for unnecessary costs.
Data Privacy and Security
Centralization is followed closely by security problems. Hundreds of projects that store user funds are at risks of being hacked. Despite all the efforts there is a lot of space for potential breaches and errors that can lead to losses of great amounts of money. If you search in Google, you may get a clear idea about somewhat disorientated chronicles that exchanging services bring forward on of Data Privacy cum Security. In centralized exchanges, we are to trust the service, as funds will be kept within the exchange and most commonly it doesn’t provide you relevant private keys needed to gain access for the funds. Therefore, there are many instances where centralized exchanges often considered less tempted and assured location to keep tokens. To prevent losing all assets and lower the risk being attacked by hackers, it is necessary to complete the transactions and to move the tokens inbound/outbound as fast as possible in centralized exchanging platforms.
Furthermore, though how much attention that they dedicate to procedures and be cautious at any given minute, yet these companies are being distressed from human errors or technical malfunctions and crashes. Thus, so far it has been a tough job for companies which run centralized exchanges, making sure of data privacy concerning interior the breaches though how much they opted to make diverse security arrangements. Being established in a specific geographical area, makes them vulnerable for being helpless as it becomes necessary for having cooperation with state institutions, agencies, regulators or the government itself on requests they present to companies, to reveal some of the data or the whole ownership itself. That is why the centralized exchanges are not capable on guaranteeing 100%, the security and integrity user data. This where the Blockchain comes in.