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Centralized vs Decentralized Exchanges

When the storm of cryptocurrencies came, many cryptocurrency exchanges arose, facilitating convenient trading on their platforms. Though efficiency is being provided, some may forget the security risk related to keeping all the funds in a centralized manner. In the fifth episode of Blockchain Beyond Hype, we are talking with Artur Zaharov, the Product Manager of the peer-to-peer cryptocurrency exchange Hodlhodl, about the pros and cons of the centralized and decentralized exchanges.

Laks: We’re here today with Artur. Welcome to Blockchain Zoo. We’re excited to have you here to discuss your thoughts on the blockchain, bitcoin, and exchanges.

Artur: Hi, thanks for having me.

Laks: It’s our pleasure. So Artur, already in your early career you have a great position, and you can work remotely if you choose to. I am sure there are many enthusiasts and job seekers in our audience that would love to hear from you how you manage to get to such a sweet spot so fast. Would you mind giving us some insights?

Artur: I met Max and Roman that are founders of our company, and when I was in university they proposed me to complete an internship in their company. After that, they take me in the company as an employee. The first one. So basically that was just a kind of coincidence that I met Max and Roman and got into this company. But this was three or four years ago. Now I see there is a better situation for digital nomads and people that would like to work remotely. There is no problem to find a job, especially if you’re in the cryptocurrency space. Because I see a tendency that companies in a cryptocurrency space like to hire people for a remote job. So the best advice I can give is to go to Google and find sites that are offering remote jobs.

Laks: So you have mentioned that you have a background in economics and you are a product manager. Did you have to get extra certification like Product Owner in agile methodology or anything else?

Artur: I don’t have any certificates, and I don’t think it’s crucial. I know my employers think the same. The certificates are just like papers. Everything I do right now in my job and the knowledge I have, I’ve got it through the practice, and I think it’s more valuable.

Laks: The rest of your colleagues are either in Europe or they work remotely. So what is the most challenging part of being separated by thousands of kilometers from your teammates?

Artur: I don’t see any super crucial challenges because we have worked remotely from the start. There had been no office where we sat together, and after that, we departed to other parts of the world. The main challenge is to catch up within the time zones. But working remotely is a really good opportunity not to waste your time. Especially if you don’t have a certain schedule but you have an amount of work that has to be done, and so then you work when you can. So no matter whether you are working at nights, mornings or evenings, everyone just wants the work to be done. That’s why I don’t see any special challenges, to be honest.

Laks: So, what about the founders of HodlHodl. What is the story behind coming up with an idea to launch a decentralized exchange?

Artur: Actually, HodlHodl is not completely decentralized exchange in the sense that there is still an opportunity to close the website. We’re just holding funds in a decentralized way. The idea behind the HodlHodl is very simple. We have two competitors Local Bitcoins and Paxful. Our founders used at least Local Bitcoins, as far as I know, and they told that they could build a better, safer, cheaper and more convenient platform. So that was the initial and the main idea behind HodlHodl to make the better product.

Laks: So after the crypto boom such a variety of exchanges appeared on the market that it’s hard to choose one. As an expert in this field could you comment on parameters we should consider when choosing an exchange platform? For example; the first one is country support, checking whether such a service is available in my country.

Artur: Before going into the parameters, I would like to highlight two types of exchanges that exist – centralized and peer-to-peer (decentralized). That was a subject actually yesterday. I was a speaker at the meet-up our company organized here in Bali, and I talked about it. So basically, centralized and peer-to-peer exchanges differ by the following things. The centralized exchanges are the biggest ones in the crypto space, Binance, and Bitfinex, based on Kraken. And basically, they’re holding your funds. So that’s quite an easy way for common people and daily traders to buy and sell cryptocurrency. But that’s still not safe. If you’re looking for a way to quickly buy and sell bitcoins, if you are looking for liquidity and cheap prices, you’re going to the centralized exchange. But that’s not safe to hold funds on the centralized exchanges. So you’re taking a risk. Secondly, they’re verifying you. Most of the exchanges have KYC and AML procedures. Without them, you will either have limits, or you won’t be able to trade at all. There is a peer-to-peer exchange as well. So if you are looking for safety, if you’re looking for the privacy, you’re going to the peer-to-peer exchange. That’s kind of the exchange HodlHodl is, Local Bitcoins as well and Paxful. When we’re talking about the parameters like country, actually there are quite a lot of global exchanges. So, I don’t think there is any problem. Especially, if you’re choosing the peer-to-peer exchange because they’re not tied to any country. They’re like the advertising platforms where people place an offer to buy or sell, and they can place an offer in each country in the world. So when you’re choosing the exchange, I don’t think it’s a problem to find it in any country no matter where are you located.

Laks: What about fees like a deposit, transaction, withdrawal fees? 

Artur: There is a difference between centralized and peer-to-peer exchanges again because peer-to-peer exchanges are quite expensive. Local Bitcoins has a one percent per trade fee, HodlHodl takes at maximum 0.6 percent. So in that sense, it is quite cheaper to use the centralized exchanges because they are charging the trading fee when you are selling and buying cryptocurrency. The second one, as far as I know, and the most popular is the withdrawal fee. I don’t face the depositing fee on most of the exchanges. I don’t know the reason, I just don’t face it. So in terms of fees, it is cheaper to use the centralized exchange as BitFinance and Binance.

Laks: What about exchange rates? It’s known that the fees are very different among exchanges.

Artur: That’s good that I started with the comparison of the centralized and peer-to-peer exchanges because, on the peer-to-peer exchange, the exchange rates are higher. The market is based on the prices on the centralized exchanges, and when you are setting an offer on the peer-to-peer exchange, you are basing it on the centralized exchange. You base your offer price on one of the existing centralized exchanges and add your markup. If you are selling, you are selling above the market price. If you’re buying, you’re buying below the market price. So in that sense, if you are on the peer-to-peer exchange, it can be profitable for you if you were making your own offer. But if you’re taking, it will cost you money. On the centralized exchange, you are just buying and selling by the market price.

Laks: So what about buying limits? They always depend on the range of parameters such as payment method, identity verification level like you said and so on.

Artur: Limits were actually introduced by most of the exchanges for security reasons. First of all, crypto space is quite a new area in the financial sector, and there are quite a lot of scammers who will like to steal your own money. Because of that, the limits are introduced on most of the exchanges, and you can avoid them by passing the verification processes on the centralized exchanges. That’s a common practice. On the peer-to-peer ones, talking about our exchange HodlHodl, we have the limits, and whether you’re passing verification that’s optional, that’s not obligatory. However, you are receiving fewer limits after passing the verification process because we’re quite sure who the person is behind this account and if something is wrong, we can take measures.

Laks: So what about exchange reputation? Is it well known? Are there any complaints floating on social media?

Artur: Actually, such cases are well-known on social media when the exchange was hacked, or the funds were stolen. Because of this, the centralized exchanges do not have the best reputation in the crypto community.

Laks: Ok, so have I missed anything? Would you add or remove something?

Artur: Basically, no, I think. I will re-explain the main difference between the centralized and peer-to-peer exchange. I think that every user has to understand the difference between the two types of exchanges, centralized and peer-to-peer. If you don’t know the reason, I’d like to advise you to delve deeper into this subject before buying or selling cryptocurrencies.

Laks: So as you mentioned before, there have been so many fraud situations in the market. Early traders can count several exchanges they registered on one day and the next day the platform just disappeared with funds of all users that were holding crypto or fiat on their accounts. From a user perspective, there might be a lack of trust caused by negative PR in general. What effort do you put into marketing and PR activities?

Artur: Fun case, yes, when you are using the exchange and owners disappear with your funds. But still, there are quite many exchanges behind whose are real people with their reputation. I can talk about my company. Behind HodlHodl are Max and Roman. They have a good reputation in the whole crypto community and because of that people trust our exchange. I think that’s quite important. Behind the Binance there is also a well-known person. He’s quite known on social media. Everyone knows it, and everyone trusts Binance. So I think if you are trying to find a new exchange, you cannot just read the reviews of the exchange but also to find who is behind this exchange. Talking about the second part of the question, PR and Marketing, we’re not spending money on PR and marketing at all. We have zero budget for PR since we believe that in crypto if people really like you, they will advise their friends, acquaintances and other people to use your service. So because of that, we’re not spending any money on PR.

Laks: Ok. So plus, regulations keep changing, depending on the country and its policy. From a B2B perspective, it seems to be such a risky and volatile business environment. How is Hodlhodl as a small business handling all those obstacles?

Artur: To be honest, we do not face these legal issues for a couple of reasons. First of all, we do not hold any funds. I want to highlight this because governments are going to you when you are processing fiat money and cryptocurrency. What we’re seeing with Local Bitcoins, they just introduced a new KYC and AML Policy four days ago. That’s the main reason why we’re not facing these issues. We don’t hold any funds nor fiat nor cryptocurrency. The second one is the proper jurisdiction. Once again talking about Local Bitcoins, they’re based in Finland, and they’re regulated by the European Union as well. HodlHodl exists in the proper jurisdiction and is not the subject of such trouble or regulations.

Laks: All right. So even though the blockchain enables P2P trading, most of the exchanges are hybrids, or they don’t use the blockchain technology at all. Looking at your model, I wouldn’t call, as you said, Hodlhodl an exchange, it’s like a trading platform in its pure meaning. And there are other players in the market, doing their best to bring innovation into the model of exchanges.

Artur: Yeah, I think if you googled the term exchange, you would read that they are websites or applications that help to match orders from people. So there is a trading engine and a very complicated system that helps people to buy and sell cryptocurrency. In that sense, HodlHodl is somewhere between advertising service and the exchange. So that’s a place where you are coming and placing an advertisement and HodlHodl provides you with a technical solution for buying and selling a cryptocurrency, making the process of buying or selling secure. So in that sense, we’re somewhere between the exchange, trade, and advertisement service.

Laks: All right. So on your website, you built a table that compares several exchanges. And instead of giants like Huobi, Bittrex or Bithumb, you included Local Bitcoins and Paxful. Why did you decide to compare yourself with them?

Artur: For a simple reason – we’re a peer-to-peer exchange, and we compare ourselves with other peer-to-peer exchanges. We’re competing in some sense with other exchanges like you mentioned Huobi, Binance and others but still we consider Local Bitcoins and Paxful as the main competitors because they have a similar workflow as our exchange has.

Laks: What is the major disruption and shift the blockchain technology is bringing to the table in the financial sector?

Artur: I think that blockchain and bitcoin first. Then making governments and banks one world system and adapting to change because there is no way to stop bitcoin, stop the new way how people are sending their value. This causes the adoption, and then the governments will understand they cannot deny the fact that something in this world and the financial sector changes. So basically that’s what blockchain and bitcoin shape in this world.

Laks: This has been very interesting. Thank you for telling us about HodlHodl. We do like to ask all of our guests how do you envision blockchain changing the world?

Artur: There will be a change in the way people are sending their value. So people will understand that freedom is really crucial, that governments are trying to control every action you take and people will understand that there is a way to avoid this. So far not many people understand this issue that every action they make is controlled. I think the blockchain, bitcoin and this crypto space will bring more freedom to this world, and clarity about what actually happens here in this world.

Laks: How do you think the market for blockchain-based solutions will evolve?

Artur: I think there will be more and more projects that we see right now. We’re at the start of the big, cool, interesting future and I think there will be more and more interesting projects that are resolving our issues in a better and more efficient way. I mean that’s the main thing that will happen — more projects and fewer and fewer issues in our lives.

Laks: Ok, well this has been fascinating. Thank you again for coming to speak with us at Blockchain Zoo about HodlHodl, cryptocurrencies, trading, and exchanges, and we wish you luck on all your current and future projects.

 

BBH Guest: Artur Zaharov, Product Manager at Hodlhodl

Artur has years of experience in the cryptocurrency world by joining different projects in various forms. From the very first time he entered the industry back in 2016, Artur has always been fascinated by the potential, the value, and the future of cryptocurrency. Currently, he is a Product Manager of the peer-to-peer exchange and a facilitator of meet-ups in all across the globe.

Blockchain Beyond Hype is a series of interviews with blockchain experts and technology professionals from all across the globe about blockchain projects, challenges, innovations and the future of blockchain within the blockchain jungle!

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