Seeing that Binance and its neighbor are fighting fiercely on web3 wallets, I bring up this topic. The following is just my personal summary, and everyone is welcome to discuss it.
The origin and development of exchanges
Initial transaction needs: In the early days of virtual currencies, transactions were usually peer-to-peer, for example, through forums or direct contact. This method was feasible when the transaction volume was small, but as the number of users and transaction volume increased, this method became inefficient and insecure.
Growing demand for matching transactions: As the popularity and acceptance of virtual currencies increases, the demand for a platform that can quickly and efficiently match large numbers of buy and sell orders increases. This led to the birth and development of exchanges.
Efficiency and Liquidity: The exchange improves the efficiency and liquidity of transactions by centralizing users’ buy and sell orders. This means users can find counterparties and complete transactions faster. To put it simply, for both parties to the transaction: fast, appropriate price, and low handling fee.
Diversified services: The exchange not only provides basic buying and selling services, but also provides advanced trading options such as leverage trading, futures trading, and other related services such as fund storage, asset management, etc.
The relationship and difference between exchanges and wallets
In the early stages, wallets and accounts are the basic tools used to store and manage assets. As trading demand grows, centralized exchanges have emerged to provide more efficient trade matching services.
The emergence of exchanges does not replace the function of wallets, but serves as a supplement and extension, especially in handling large and complex transactions. However, the exchange implements transaction matching by storing users' funds in the exchange's wallet.
The difference between exchanges and wallets should mainly be:
Security: The wallet reduces the risk of funds being misappropriated by centralized exchange funds (see FTX). However, users need to be responsible for the security of their own wallets, such as being hacked and causing key leaks.
Trading variety and liquidity: Centralized exchanges typically offer a greater variety of trading pairs and higher liquidity. This is very important for users who are looking for specific trading pairs or need to execute large trades quickly.
Decentralization: The transaction characteristics of decentralized wallets provide higher anonymity and decentralization, but this is only for virtual currencies and does not involve the deposit and withdrawal of legal currency.
most reasonable way
Taking into account the security of account funds, the efficiency and low cost of transactions, isn’t the most reasonable way:
Legal fiat currency exchange;
Virtual currency is stored in the wallet daily;
When you need to trade, recharge to the exchange;
After the transaction is completed, withdraw the money to the wallet;
Keep your keys safely.
However, why are both Binance and OKX now reversing the course and cramming so many trading functions into their wallets? Spot flash swaps are plugged in, financial loans are plugged in, and contracts are also being tested. I can't understand it, I really can't understand it. Is it because of the impact of the FTX incident? Is it because the anonymity of the wallet prevents Gov censorship?
