There are a considerable number of crypto exchanges today. Usually, a person’s acquaintance with the world of cryptocurrencies begins with just such sites. Centralized exchange VS decentralized exchange: what’s the difference? If you can understand these concepts, it will be much easier to choose the right platform.
What is a cryptocurrency exchange?
Cryptocurrency is a particular type of digital currency that can exist exclusively in blockchain technology. Unlike regular fiat currencies, crypto assets can only function in specific software.
There are two prominent flavors of platforms where you can store and execute transactions using cryptocurrencies. It is an e-wallet and exchange. Cryptocurrency wallets are great for storing large amounts of money because they have much better protection.
When people get acquainted with the world of cryptocurrencies, they often pay attention to the exchanges. It is a reasonably easy-to-manage site, which is not too different from a regular fiat exchange in its properties. Here you can register, buy cryptocurrency, make money trading, and much more. In general, this is a vast platform where everyone who wants to change their life for the better.
Varieties of cryptocurrency exchanges
Today, quite a few types of cryptocurrency exchanges have been developed. Each of them has its fundamental differences. At the moment, there are main varieties:
Let’s try to understand the features of each of these varieties.
Centralized cryptocurrency exchanges (CEX) are top-rated today. It is the most traditional type of exchange because you can trade both crypto and fiat currencies here. To get started, each client must register. The registration process here takes only a few minutes. You need to provide personal and contact information. It will also create additional options for login confirmation.
CEX is owned. Typically, the parent company can regulate the exchange, control the value of currencies, and set rules. As a result, there is an entity that is responsible for all transactions.
The main advantage of CEX is its superior design and great functionality. Usually, UI and UX designers go to great lengths to make the exchange as user-friendly as possible. Because it performs a vast number of functions, this is not easy to do.
Another plus of centralized crypto exchanges is that there is a good aggregation of liquidity here. As a result, you get the cryptocurrency at the average market value, which means you can resell them for a higher cost.
In addition, CEX offers some additional services:
- possibilities of storing funds,
- IEO (Initial Exchange Offer),
- DeFi (Decentralized Finance) services.
Each of these services is quite popular because with their help you can make good money. So, for example, you can leave some amount of money for staking and not use it for a specified time. The system will use the currency for regular operation and, in return, will accrue bonuses to you. The same principle exists in an ordinary bank in the form of a deposit. You can order payment at a convenient moment and are not tied to anything.
CEX does not contain the keys that the blockchain usually uses, and data security is entirely in the hands of the exchange. It makes it as easy as possible to manage your account.
Centralized exchange crypto is a good solution for those who value comfort and a considerable number of functions, first of all. Security here is worse than in decentralized sites, but the conditions for cooperation in CEX are generally better.
Popular centralized cryptocurrency exchanges include Binance, Coinbase, and Huobi. Most exchanges provide technical support to their users so that you can contact a specialist for help in case of problems.
Choosing between centralized VS decentralized exchange, many experienced users choose the second option. DEX is an excellent alternative to CEX. It is simply a platform that helps customers and sellers meet. Here you will not give your assets into the hands of a third person, which significantly increases the level of security.
If in CEX all transactions are performed by the system itself, smart contracts are actively used in decentralized exchanges. It allows you to increase security, take into account possible risks and create truly thoughtful arrangements. Decentralized applications are also widely used here.
Most decentralized cryptocurrency exchanges run on the Ethereum blockchain. This decision is not surprising, because at the moment it is the most sophisticated technology. Here you will find a considerable number of tokens and the most secure smart contracts. The main disadvantage of this solution is that you cannot trade Bitcoin here. It is assumed that shortly this problem will be solved. Modern exchanges are actively working on this.
Any authority does not control DEX, so no one is responsible for the operations that are carried out in the system. On the one hand, this is bad since it will be impossible to prove your rights in the event of deception or fraud. But on the other hand, this leads to the fact that no one can close the exchange or block transactions. Now the authorities of many countries are trying to fight the cryptocurrency industry, as they see them as a danger to the economy.
It is important to note that today smart contracts are the safest type of transaction. Financial transactions are carried out only after both parties fulfill their obligations. In addition, blockchain technology creates a unique key system that prevents any fraud. This technology is incredibly complex. Decentralized exchanges focus exclusively on security.
As for the disadvantages of decentralized exchanges, their main problem is that the system offers terms of cooperation that are quite complex to understand. There is no well-designed interface or such a massive number of services here. Usually, they are somewhat similar to message boards. Here you can find a seller or a buyer of the cryptocurrency you need. DEX usually uses a limited number of currencies and cannot boast the same variety as CEX.
A decentralized trading platform will allow you to carry out the most secure transactions, as well as feel protected. Among all the exchanges, Binance DEX and Uniswap deserve the most attention. They have been on the market for several years and have proven to be effective. Usually, they are chosen only by experienced users who have previously successfully worked on centralized exchanges.
Comparison of CEX and DEX shows that the former is faster, more convenient, and easier to use, but it is far behind DEX in protection.
Hybrid cryptocurrency exchanges
Sometimes choosing between centralized VS decentralized cryptocurrency exchanges, many choose hybrid platforms. These include the benefits of DEX and CEX. They have fast duplicate transactions and beautiful interfaces as centralized exchanges and the same way of maintaining security (private and public keys) as in DEX.
In general, this type of cryptocurrency exchange still needs some work, but they are already functioning very successfully today. Among the most popular are Nash and Qurrex.
Tips for choosing a cryptocurrency exchange
Because there is a considerable variety of cryptocurrency exchanges, it becomes pretty tricky for a beginner to choose right away. So, for a start, you should select a centralized cryptocurrency; in the future, when you can better study the world of cryptocurrencies, you will use a more complex and secure system.
When choosing cryptocurrency exchanges, you should consider:
- the number of cryptocurrencies;
- level of security;
- the price of currencies;
- availability of additional functions;
- the ability to withdraw assets into fiat currency.
A vast number of cryptocurrencies appear every day. Some of them become successful, but most of them are doomed to fail. Nevertheless, using them for trading can be advantageous because it will allow you to make good money.
Most cryptocurrency exchanges are very often susceptible to hacker attacks. Some of them are losing so much money that they are forced to close completely. It can lead to big problems.
Some cryptocurrency exchanges have their liquidity aggregations and build the value of cryptocurrencies depending on personal perceptions. Often this cost is reasonable, but sometimes you can find a big enough difference to work well on.
The ability to use additional functions can be beneficial for those who want to take full advantage of the capabilities of the crypto industry. If you learn to use different parts wisely, then you can make good money.
The difference between CEX and DEX is that the former is similar to classic fiat currency. DEX, in turn, uses more sophisticated security, but it can be more challenging to use. In general, the choice depends on what conditions are essential to you, what volumes of currencies you use, how long you have been dealing with cryptocurrencies, and how well you understand how they work.