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Intro
The thesis of the crypto movement is that of financial freedom. Financial freedom from institutions. The freedom to own your own money. To be able to securely spend, buy, and exchange without the need for a third party. But what does all this mean in practice? The crypto world is still nascent, with many parts that are not so beginner-friendly. One of these parts is the actual crypto currencies. The tokens that power projects operating the crypto-verse and advancing the cause forĀ Web3.
A gateway to the crypto world is the tokens themselves, so it is an important consideration to make as to what type of access you want to these tokens. So, weāre brought to the topic of this article: crypto token exchanges that are run by a single party vs. crypto token exchanges that run on the blockchain via smart contracts. In other words, Centralized exchanges (CEXs) vs Decentralized exchanges (DEXs).
The main differences
A centralized exchange (CEX) is a platform for buying and selling cryptocurrencies that is run by a single company or organization. This means that the exchange has control over the assets that are traded on its platform, as well as the information and data related to those trades. In a centralized exchange, users must entrust their funds and personal information to the exchange, which can make them vulnerable to hacks and other security breaches.
On the other hand, a decentralized exchange (DEX) is a platform for buying and selling cryptocurrencies that is not controlled by a single entity. Instead, it is run on a decentralized network, such as a blockchain. This means that the exchange does not hold control over the assets that are traded on its platform, and users are able to retain control of their own funds and personal information. Decentralized exchanges are considered to be more secure than centralized exchanges, as there is no central point of failure that can be targeted by hackers. However, they may not offer the same level of liquidity or convenience as centralized exchanges.
Centralized exchanges: the good and theĀ bad
The good
Functionality
Centralized exchanges, or CEXs, offer a range of features that make them attractive to cryptocurrency users. These platforms are easy to use, with user-friendly interfaces and clear instructions that make it simple for even new users to buy and sell cryptocurrencies. CEXs also offer a range of payment options, including the ability to purchase cryptocurrencies using traditional fiat currencies or other cryptocurrencies.
Liquidity
Another advantage of CEXs is their liquidity. These exchanges typically have a large number of buyers and sellers, which means that it is easy to buy and sell large quantities of cryptocurrencies quickly and at competitive prices. This makes CEXs a good choice for traders who need to complete transactions quickly or who want to take advantage of price fluctuations in theĀ market.
Ease-of-use
Centralized exchanges typically have user-friendly interfaces that make it simple for users to buy and sell cryptocurrencies. CEXs also offer a range of functions, such as charting tools and order types, that allow users to track prices and execute trades withĀ ease.
A better user experience
In addition to the user-friendly interface and useful functions, CEXs often have comprehensive user support to assist users with any questions or issues they may have. This can include support through email, phone, or live chat, as well as detailed documentation and tutorials. This makes it easy for users to get help if they encounter any problems or have questions about using the platform.
The not-so-good
Lack ofĀ privacy
One of the main downsides of using a CEX is the lack of privacy. Because these exchanges are centralized, they require users to provide personal information in order to create an account and complete transactions. This can include sensitive information such as a government-issued ID or bank account details. This lack of privacy may not be appealing to users who value their personal information and want to keep their financial affairsĀ private.
Custody overĀ assets
When using a CEX, users must trust the exchange to handle their funds and execute trades accurately. This means that users give up control over their assets to some extent, which may not be appealing to those who value full control over their financial affairs. Additionally, if a CEX goes offline or experiences technical issues, users may be unable to access their funds or complete trades. This can be frustrating and inconvenient, particularly for those who rely on the exchange to manage their cryptocurrency portfolio.
Limited options
While CEXs offer a wide range of cryptocurrencies, the selection is often more limited compared to decentralized exchanges. This can be limiting for users who want to trade a specific cryptocurrency that is not offered on theĀ CEX.
Higher fees
CEXs generally charge higher fees than DEXs, as they often have more overhead costs such as server maintenance, customer support, and regulatory compliance. These fees can add up over time, particularly for frequent traders or those who trade large amounts of cryptocurrency.
Decentralized exchanges: the good and theĀ bad
The good
Privacy
DEXs offer a higher level of privacy compared to CEXs, as they do not require users to provide personal information in order to create an account and complete transactions. This can be appealing to users who value their personal information and want to keep their financial affairsĀ private.
Lower fees
DEXs generally have lower fees or no fees at all compared to CEXs. This is because DEXs do not have the same overhead costs as CEXs and are able to operate more efficiently. As a result, DEXs can offer more competitive fees for users, making them an appealing choice for those who are looking to minimize tradingĀ costs.
Control
When using a DEX, users retain full control over their assets and are not dependent on the exchange to manage their funds. This can be appealing to those who value full control over their financial affairs.
The bad
Complexity
DEXs can be more complex to use than centralized exchanges (CEXs), as they require users to manage their own funds and may have more advanced features. This can be intimidating for new users or those who are not comfortable with managing their own cryptocurrency.
Lack of liquidity
DEXs generally have smaller user bases and a more limited selection of cryptocurrencies compared to CEXs. This can make it harder to find buyers or sellers for a specific cryptocurrency, particularly if it is not widely traded. As a result, DEXs may not offer the same level of liquidity as CEXs, which can make it more difficult to complete trades quickly or at competitive prices.
Limited paymentĀ options
DEXs often only accept cryptocurrencies as payment, which can be inconvenient for users who want to purchase cryptocurrencies using traditional fiat currencies. This can make it harder for users to access DEXs, particularly if they do not already own any cryptocurrencies.
In conclusion
A centralized exchange is very user-friendly, and thus very beginner friendly. Someone who is just dipping their toes in the water that is the big, bad world of crypto may want to opt for an option that has more of a support system in place with better liquidity that will offer a smoother experience.
However, it should be noted that DEXs offer great exposure to crypto projects that are on the cutting edge of the cutting edge. And as DeFi applications rise in popularity, it might benefit someone who is interested in exploring that to interact with a decentralized exchange.
CEXs vs DEXs was originally published in The Poloniex blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.