Pros and cons of adopting the Defi Technology in Cryptocurrency exchange platforms
Decentralized Finance is reverberating in the cryptocurrency sector nowadays. Like the cryptocurrency, it is creating a revolution in finance thereby functioning without the interference of a third party like Banks or any other non-banking financial institutions. This is the next generation financing. The loans and other financial transactions will be conducted without any central regulations or authorities which can further speed up the process. DeFi technology in the cryptocurrency exchange platform will be a catalyst in the cryptocurrency exchanges as these platforms can expand their base to conduct other financial transactions that are currently under regulation. In this blog, we can get to know about the pros and cons of decentralized finance in the bitcoin and cryptocurrency exchange platform.
DeFi in Cryptocurrency applications:
- Smart contracts — Smart contracts and their applications will be more effective with DeFi applications. Yes, dapps ( Decentralised applications are considered as dapps) can revolutionize the contracts and loan management system. Smart contracts along with DeFi is really a gift for the financial management criteria. It saves time and promotes financial assistance for the population without any regulatory restrictions.
- Asset tokenization — With DApps, asset tokenization is really complementary. With DApps, you can convert any asset to a token with the assistance of smart contracts as there is no regulation of any central authority. But legal approval checks should be conducted before supplementing Asset tokenization to DApps.
Pros of DApps in Cryptocurrency exchange platform:
Dapps have a lot of positive applications on many platforms, especially in the cryptocurrency exchange platforms.
- Stability and flexibility — Yes, the decentralized applications are packed with utmost stability and flexibility in terms of control and management. They can be managed according to our convenience, by agreeing to proper terms and conditions. So, there is no need for vigilance or third party involvement if we have dapps installed.
- No worries about the censorship — Dapps are known for their tolerant mechanism. They are completely censorship-free applications and in cryptocurrency exchange platforms, they follow the same. The exchanges and trade in a Dapp powered cryptocurrency exchange is transparent.
- Expands Peer to peer networks — As we all know, there is already an existence of Decentralized exchange platforms. They help in exchanging coins and fiat currencies without the involvement of any third parties. These DApps can further supplement in improving the service of the decentralized exchange platforms.
- Security — It is a secure and unhackable application. As the information will not flow from a single point of the source but distributed to multiple sources thereby making the hacking process impossible. The Decentralized applications use blockchain and further strengthen them using their distribution technology to protect the information. They are spread to different nodes and are stable than traditional centralized platforms.
- Reduced usage of API — This is essentially hopeful in blockchain infrastructure. As the DApps interact with the blockchain, the frontend software of the DApps contains all the cryptographic key infrastructure which in turn triggers the smart contract through the wallet, instead of triggering through API. So, it integrates with the blockchain more effectively than the API. This DApps is a kind of Web3 application model which contains the Web2 infrastructure stack along with additional security elements to integrate with the blockchain technology.
Despite the uses of Decentralised applications in the cryptocurrency exchange platform, they are specifically used in smart contracts and blockchain.
DApps in expanding the cryptocurrency exchange horizon:
In Spite of enhancing the cryptocurrency exchange platform, Dapps also help in expanding the horizon so that other such financial services can be provided by the cryptocurrency exchange.
Smart contract facilitation:
Smart contracts help in exchanging the money or cryptocurrencies between the two parties without any interruption of the third party. This contract is designed in such a way to facilitate the promotion of peer to peer decentralized exchanges or transactions. The DApps in Smart contracts help in assisting the Smart contracts. It is considered the next generation smart contract or up-gradation in smart contract technology. It is because of their distribution network. As the normal applications process the information to other devices from the cloud using specific ISP’s, the DApps fix three to four ISPs and distribute them to various devices. So, if a hacker wants to hack the entire system, he has to hack as many as the devices that the ISP’s are distributed on, which is an impossible task. It is the smart contract, which allows the DApp to link to the blockchain technology. DApp has a critical role to play a supplementary role in the blockchain sector and improving the security features of the cryptocurrency exchange platforms.
Decentralized application in the blockchain network:
Decentralized application is not an application that is overtaking the blockchain technology but it assists the blockchain features to promote security. They are no different from a website or an app, but the blockchain runs with the assistance of the DApps. It is a supportive technology to further strengthen the blockchain. It is a sort of business logic that integrates as many as smart contracts to support the underlying blockchain to promote security.
Decentralized applications work similarly to conventional website applications. It has a frontend and backend structure. Whereas the front-end contains a wallet that interacts with the blockchain for security enhancement. This frontend wallet manages the cryptographic information and the blockchain addresses. It is a Web3 stack technology that integrates with the blockchain technology effectively compared to other Decentralized application interfaces. To cut it short, blockchain operates as the security feature to the cryptocurrency exchange platform, and with DApps, it can function independently by integrating with the smart contracts.
Cons of using Decentralized applications:
With advanced features, DApps too face some constraints in application and usage:
- Fixing issues is a complicated task: As it is a distributed network, fixing issues and updates require everyone who uses the DApps to update their network and all the copies in their network. Also fixing the bugs is more complicated compared to a conventional website application.
- KYC approval is not facile — Centralized cryptocurrency exchange platforms have a single-window clearance for the KYC verification, but DApps powered platforms do not have a common authority to check the KYC details and it is a complicated process in dealing with a trusted peer in the application.
- Complex scaling process — Data validation is not an easy process as built in a centralized network. It should be taken care of right from the beginning to focus more on the outcome and requirements.
- Trust and reliability — These DApps break out the trust and reliability factor of the third party. But most of the population needs a third party to rely upon on a safe side. So, the trust becomes a question mark when it comes to DApps
- No legality or corruption flow — Because of the lack of regulation by a third party, there are chances that corrupted money may be circulated through this platform as there are no legal hassles involved. Also, decentralized platforms are not allowed in many of the countries thereby making DApps a difficult one to induct in a cryptocurrency exchange platform.
DApps is the present sensitive topic in the cryptocurrency field. It will facilitate the cryptocurrency exchange platforms in a great way only when it is adopted based on certain standards. Analyzing the pros and cons, Adopting the DApps in cryptocurrency is a great boon.