Cryptocurrency exchanges deal with all that is connected with Initial Coin Offerings, or ICOs. ICOs are the phenomenon through which the organizations and organizations introduce their assets to public and other organizations. Those assets are known as tokens, and the process of tokens turnaround became possible thanks to Blockchain technology. Through token sales, startups are able to perform the financing of their projects without traditional venture capital creation.
The number of tokens though increases significantly, and centralized exchanges aren’t able to cope with that volume. Companies are purchasing a number of tokens as investment. The thing is that with the centralized exchange, when an investor buys / sells cryptocurrency, first the approval shall be got, and that takes some minutes, during which the price can change significantly and influence the profit. Volumes of traded cryptocurrencies are huge, and centralized exchanges are very often a subject of fraudster and hacking attacks. Which can cost milliards of dollars.
The problem is that centralized exchanges are keeping all user information, including blockchain codes, in a single database, “Silo”. It means that for a hacker it is enough just to break into the database, and he will have access to all users` data. Basically, while entrusting your money to a centralized exchange, you believe, that it will not be lost because of a hacker attack, a hardware failure or whatever cause, and that your money will not be stolen by the exchange itself, and the exchange will not disappear from the market.
A good alternative solution could be decentralized exchange, most of all, because it would be able to leverage the Blockchain. That would be a trustless exchange, which means, a trader will not have to trust to a single party, and the transactions would be transparent, hence, there will be no option for fraud.
A decentralized exchange would be designed as well to not to hold funds of the users, and it will make peer-to-peer transactions possible.
Why then decentralized exchanges aren’t used widely? Mostly because of their interfaces are much more complicated than those of centralized exchanges, but as soon as this is solved, they may come in the place of centralized exchanges.