It is a question on the mind of every trader. Whether to use a centralised or decentralised cryptocurrency exchange can really tough choice. We first need to understand the fundamental differences between the two, before we can make a decision. Let us spare a few minutes to identify which platform is actually going to be right for you. We will do this by providing a detailed comparison of centralized vs decentralized exchanges.
CEX vs DEX Exchanges
Types of crypto exchanges
There are two main types of cryptocurrency exchanges based on their nature, operation, and governance. The two main types are centralized exchanges and decentralized exchanges. The main difference between Centralized vs Decentralized exchanges is, one is controlled by a middle man or custodian and the other is not. With the latter (DEX), you are fully in control.
CEX vs DEX (Examples)
What are centralized exchanges (CEX)?
CEX is an abbreviation for a centralized exchange. It means that the platform acts as an intermediary between traders similar to online brokerage firms. Many centralised exchanges offer a range of popular services. Services may include the storage of cryptocurrency, margin trading as well as spot trading crypto on their platform. Most centralized exchanges offer the ability to stake your crypto as well. The process of staking allows you to earn interest on the crypto that you hold.
What are decentralized exchanges (DEX)?
A DEX is the complete opposite and stands for a decentralized exchange. Dex exchanges provide services to their users with two main purposes in mind. Maximum anonymity of transactions as well as full control of your own funds. This means that Decentralized exchanges are non-custodial, meaning they do not hold your crypto assets for you. You have to store them in your own wallet, such as a Metamask for example. Anonymity also means that the users sensitive data is secure. There is no need to perform verification or go through KYC (Know Your Customer) processes.
Comparison between Centralized vs Decentralized Exchanges
The Following are the main features of a CEX crypto exchange
- A CEX or centralised exchange acts as a middleman between traders. CEXs also offer a convenient and intuitive interface as well as a whole set of services under one roof.
- A Centralised exchange makes profits on transaction fees.
- Centralised exchanges are also regulated and monitored according to the laws of each specific jurisdiction.
- Centralised exchanges are significantly faster thanks to centralised servers and a well coordinated structure. This allows for faster processing of user requests.
- Centralized exchanges such as Binance, Kraken and OKEx have their own process of filling the orders on the order book.
- Centralized exchanges are classified into synchronous and asynchronous exchanges.
DEX vs CEX Features Comparison
The Following are the main features of DEX crypto exchange
- There are no fiat currencies on decentralized exchanges. You can only exchange crypto for crypto.
- One of the main advantages of a decentralised exchange is that such exchanges are not directly controlled by any central authority.
- DEX platforms do not need to report to regulators and therefore they do not require verification from traders.
- Because DEX exchanges are built on blockchain protocols, this significantly limits the number of transactions per second. The rapid growth of cryptocurrency means netwokrs are experiencing high network loads. This becomes a challenge when the platform needs to quickly and efficiently create and match buyers and sellers.
- DEX crypto exchanges do not need to rely on internal servers. They simply rely on the blockchain.
- The volume of orders and transactions on DEX exchanges are typically lower compared to the CEX exchange volumes.
Examples of Centralized vs Decentralized Exchanges
Centralized Exchanges (CEXs)
- Binance — (Best overall — Binance for Beginners)
- Coinbase — (Best for USA citizens)
- Kucoin — (Buy BTC from your credit card without KYC verification)
- Poloniex
- ByBit — (Best for Bitcoin traders)
Decentralized Exchanges (DEXs)
- Uniswap — (The original DEX, Best for Etherum Network)
- Pancakswap — (Best for BSC (Binance Smart Chain) Network)
- Sushiswap
- Quickswap — (Best for Polygon (MATIC) Network)
- Bitshares
Final Thoughts
Most active traders tend to prefer centralized exchanges because of their wide variety of coins and tokens available for trading. As well as the fact that there tend to be more users as well as volume on the centralized exchanges. One reason for this might be that the barrier to entry is lower with centralized exchanges, although the requirement for verification. It’s just easier to use. CEX’s are also very popular because they are the FIAT on and off-ramps into and out of the crypto industry.
DEXs are just much more complicated to use, with having to connect your own wallet and making sure that you are on the correct blockchain network etc. DEX’s only really made an appearance with the advent of DeFi (Decentralized Finance) at the beginning of 2020. Something else to consider is the fact that most new projects being launched are usually first exclusively only available on decentralized exchanges such as Uniswap. It often takes a while for new projects to be listed on mainstream centralized exchanges such as Binance.
That being said, both CEXs and DEXs play a crucial role in the entire cryptocurrency space. Both are interdependent on one another. These platforms are all evolving at a rapid pace, which is a good thing for mass adoption and the industry in general. The lower the barrier to entry the faster the crypto industry will grow and expand.
