The great majority of cryptocurrency trades are still centralized. However, there are also decentralized exchanges. What is the difference between them? Let’s find out.
Investing in crypto can be risky. So many decisions to make, so many markets, coins. Probably the most important choice is to pick an exchange. Which one is better? Centralized or decentralized?
Centralized exchange – something in the middle
Centralized cryptocurrency exchange (CEX or CCE) is the most popular way of purchasing or selling virtual currency. CEX is very much like the banking system. The exchange, like a standard bank, takes funds from a customer and manages them. That mechanism should give security. Exchanges, like banks, have many ways to prevent any frauds.
Nevertheless, there have been cases of losing millions of tokens by exchanges over the years.
It is easier to comprehend the CEX. For instance, password recovery is very quick and simple. In decentralized exchange, a customer can’t get his/her password back.
One of the biggest advantages of centralized exchanges is that they convert fiat into crypto and the other way around. To possess any amount of virtual coins, a buyer has to use a centralized platform.
The most popular centralized cryptocurrency exchanges are Coinbase, OKEx, Huobi, Bibox, CoinDeal (FuturoCoin is available there). Over 90% of trading volume is owned by CEXs.
To exchange directly
Decentralized cryptocurrency exchange (DEX) is the purest definition of the blockchain technology. It is based on peer-to-peer (P2P) deals, so it doesn’t need any third-party assistance. The whole trade occurs directly between two users.
The DEX gives its users autonomy and anonymity. Thanks to that, decentralized exchanges are far more secure. If there isn’t any middleman who holds all of the money, theft makes no sense. Hacker can only hack one client at a time because transactions happen only with two parties involved.
The most popular decentralized exchanges are WavesDex, Kyber Network, AirSwap, Bisq (where FuturoCoin is available).
The difference is bigger than two letters up front
Both centralized and decentralized exchanges have a few things in common. They are both the places of cryptocurrency exchange. They both often offer Initial Coin Offering at the beginning of their activity. There are some other similarities, but they also differ in many ways.
Maybe the most crucial distinction is the trading volume. DEXs have a limitation in terms of functionality and utility, so they have a lower volume of transactions.
Another difference is security. In this field, decentralized exchanges take the lead. There have been multiple cases of crypto theft from centralized exchanges. Like we wrote earlier, that couldn’t happen on DEX. Nodes are spread through the entire network, therefore the risk of losing funds is minimal.
CEXs provide a wide range of capabilities including margin trading, institutional trading tools (like stop loss) and others. In opposition to that, a DEX’s user has a limited functionality of the service.
If it comes to the law, most of CEXs are licensed by the governments. There are exceptions, though. As of today, three countries have banned centralized exchanges: Russia, China and South Korea.
DEXs give a high level of confidentiality. Each trade is private, and thus no party involved can be identified. Decentralized exchanges don’t require any sensitive data from their users.
Which one should a buyer choose? There isn’t a short answer to that question. Some experts claim that crypto world can thrive only with decentralized exchanges. Still, centralized platforms are much more popular.
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