These “Blockchain basics” questions all relate in one way or another to a core blockchain service: The Exchange. There are two basic kinds of exchange. Centralized Exchanges and Decentralized Exchanges. If those terms are new to you START HERE. For these followup questions from beginners about Exchanges, we will try to answer in a general way, but in many details we will primarily focus on answers for Cardano (ada) holders.
Can one trade one crypto for another crypto?
Most definitely! The big demystifying concept here is: “Crypto” is just money – a type of currency. Fiat currency is the one most of us use every day – in today’s world, fiat currencies are created and regulated by governments. Crypto currencies are created and regulated by blockchains.
Some people are skeptical about crypto, but I’m skeptical about Venezuelan Bolivars too – doesn’t mean it’s not money.
Since it’s money, you can use it all ways money is used, conceptually. You can trade it for another money. That means that on an exchange, you can trade it for any other money supported on that exchange, including other cryptos, or even “real” fiat money. Like fiat money, you can also use crypto money to buy stuff from vendors that accept that currency. Like fiat money, its value in relation to other currencies goes up and down.
When you have funds in your coinbase account, do you have full control of it like in Cardano wallets?
Nope.
A great example is in regard to staking on Cardano. When you hold ada on a Centralized Exchange (CEX), you generally won’t have any choice about where your money is staked. You might not even have access to your staking rewards at all! For exchanges that do offer staking rewards, you earn less than if you were staking directly.
In terms of security, you don’t own the keys to your crypto on an exchange. So if that exchange is hacked, your money might be lost.
When your money is in a CEX, you have no way to participate in governance of the chain.
This is why the #1 job for blockchain newcomers is to learn how to get your money into your own wallet, where you can stake it, participate in governance, and take responsibility for your own keys!
We should also say – there is a time and a place for using Centralized Exchanges. For many people, it may be the only way to convert crypto in and out of their local fiat currency, when that is necessary. CEX’s provide a valuable service, and most of the big names in that space are reputable, trustworthy services. We just want ada holders to recognize that this convenience does NOT mean it’s the best place to keep your ada!
Are all centralized exchanges limiting in terms of the control you have over your assets?
Yes, all these examples are not just for Coinbase. On any CEX, your control of your assets is dictated by the terms of the platform. The details will vary somewhat between different companies, and the exact terms can change over time.
But, if you generally don’t keep your ada on a CEX for extended periods of time, you won’t have to worry about it 😉
Is the service fee charged when one is using Centralized Exchanges the one you see deducted when sending ADA to someone else?
Yes, And…
Transactions on Cardano always have a fee associated with them. Compared with some other popular chains, transaction fees on Cardano are both much cheaper and much more predictable! But they are still really important to the function of the chain – like popping a quarter into the pay phone, those small fees add up to the reward scheme that pays the network operators and rewards stakeholders (like you, I hope!)
When using any third party service to process a transaction (like an exchange, for example) there will be additional fees associated with certain transactions – ON TOP of the Cardano network fee. Those fees are to pay for that particular service. The guaranteed cheapest way to transact on Cardano (for example, to send money to a friend) is to use your own wallet, and your direct access to the network there. However, sometimes it’s worth it to accept the additional fees of a service provider, if the service is valuable to you.
Can Binance move your funds?
It might be clarifying to first think about what this means. Most money these days is digital. Except for a few bills in my pocket, my fiat money doesn’t have a physical location. It’s just a number in a ledger at my bank. The bank can change and update that number as it sees fit.
Cryptocurrency is completed, entirely digital and immutable. It doesn’t have a single location; by definition, it is tracked on a shared, decentralized ledger. Whoever holds the cryptographic keys corresponding to each record are able to perform actions allowed by the particular blockchain.
So technically, yes, Binance or any other CEX are able to moveE your funds because when you put your funds on a CEX, you’re essentially turning ownership over to the CEX as far as the distributed system is concerned. You’re trusting that they won’t do anything against your wishes and will give you your money back should you ask for it.
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