Centralized and decentralized crypto exchangesDenis
Decentralized and centralized exchanges: where the crypto market is going to?
Decentralization is the key advantage and basic characteristic of digital assets, highlighting that cryptocurrencies are not controlled by banks or other financial institutions. What about platforms where holders buy and sell such assets? Decentralized exchanges and centralized trading platforms are in the race to lead the market.
What are the main differences between those platforms, and which platforms are better to keep your assets safe?
CEX Vs DEX: key differences
CEX (Centralized Exchange) performs the role of a mediator for traders. Like in-demand brokerage companies, such trading platforms offer users a string of widespread services: holding, trading, sending, or withdrawing cryptocurrencies. Some exchanges add margin trading and fiat/crypto trading options.
The following three pillars are key characteristics of CEXs:
- Centralized exchanges have an owner.
- A CEX is responsible for users’ funds security.
- Such platforms follow legal norms and standards.
DEX (Decentralized Exchange) is a blockchain-based trading platform that doesn’t hold users’ crypto funds and personal information. This said a DEX is a platform that searches for matches between the bid and ask orders. As for the trading process, holders buy and sell assets directly, without any mediators.
What are the key characteristics of such exchanges?
- DEXs guarantee the ultimate anonymity of transactions.
- Such trading platforms require minimum personal information about a user.
Top advantages of CEXs and DEXs
Beginner investors and traders need to resolve a dilemma about which platforms to select. To understand the strong points of each type, let’s compare centralized vs decentralized exchanges:
CEX platforms have the following characteristics:
- Transaction model: Traders obtain a user-friendly interface and a set of services, while an exchange charges transaction fees.
- Available assets: CEXs may support both digital and fiat assets, offering users to deposit and withdraw money with credit cards and other payment options.
- Convenience for users: Diverse services and tools are available, including margin trading (many CEXs offer this option).
- Legal issues: CEXs follow legal norms and force users to correspond with KYC and AML policies.
- Business model: The CEX business model can be roughly compared to banks, as an exchange keeps funds and private keys, being responsible for their security.
- Transaction speed: Centralized servers make such an exchange quicker from the viewpoint of transaction speed.
As for DEX crypto trading platforms, the following characteristics are highlighted:
- Transaction model: An exchange connects market players, instead of bid and ask orders. A holder deals with another holder directly.
- Available assets: Fiat currencies are not available. To withdraw funds, users need to apply to either third parties or CEX services.
- Convenience for users: The interface of DEXs is quite limited and more complicated for beginners.
- Legal issues: DEXs require no verification and much personal information.
- Business model: There are no servers to keep users’ private keys, and holders control logins, passwords, and funds on their own.
- Transaction speed. Blockchain technology limits the number of transactions per second.
They say the opposition between CEXs and DEXs is a fight without a winner. Centralized exchanges offer a more convenient interface and a string of services, making crypto trading and investing as easy as ABC, while decentralized platforms rely on anonymity and security principles. We might have underlined that CEXs and DEXs are equally promising if the new tendencies hadn’t moved towards stricter crypto regulations.
The crypto market is on the way out of the shadow
Centralized and decentralized exchanges should be compared from the viewpoint of global changes in the crypto market.
The world has understood the real power of the crypto market, and governments cannot ignore the growing interest of investors worldwide. The USA, EU, and other developed countries are working on clear regulations to somehow control this sector. This said KYC and AML policies are trends the crypto community is going to rely on.
TokenInsight research shows that decentralized platforms’ trading volumes accounted for 2.68% of spot trading. Eventually, it’s debatable whether competition of CEXs and DEXs exists, regarding herein given stats. Furthermore, stricter regulation gives the green light for centralized crypto exchanges.
On the other hand, CEXs are on the way to reduce their weak points. For instance, B2BX, a centralized trading platform, places users’ funds in cold storage, offering multiple features to protect investors and traders.