There are two main types of crypto exchanges: centralized and decentralized exchanges. Make sure you understand what each of these platforms offer before you start trading on them. This article offers a detailed comparison of decentralized versus centralized crypto exchanges.
Jul 14 2022 | Article
If you are planning to trade in crypto assets, the first thing you have to think about is which crypto exchange is good for your investment. Currently, there are two main types of crypto exchanges: centralized and decentralized exchanges. So, make sure you understand what each of these platforms means and how they work before you start trading in crypto. This article offers a detailed comparison of decentralized versus centralized crypto exchanges.
#What Is a Centralized Crypto Exchange?
First of all, a crypto exchange is a platform that allows crypto investors to buy and sell their digital assets. Therefore, a centralized crypto exchange is a platform that relies on a third party or intermediary account to monitor and confirm that all transactions are safe. With a centralized crypto exchange, traders deposit their funds into an intermediary account for a specified period to ensure transactions are safe.
A centralized exchange also requires traders to submit their personal information for verification before transacting. Even trading organizations must submit their corporate details for verification before they start using the provided trading platform and tools. Verified traders on centralized exchanges enjoy higher withdrawal quotas, along with customer support, especially when they experience technical errors.
This type of exchange offers flat pairs at steady prices. Centralized exchanges are easy to use, but they have very complex compliance principles that some users may not like. For example, some users might find it difficult to share their personal details when transacting.
#What Is a Decentralized Crypto Exchange?
A decentralized crypto exchange is a platform that allows crypto traders to buy and sell digital assets like cryptocurrencies without intermediaries, which means traders do not have to deposit their funds into a third-party account when transacting. With a decentralized exchange (DEX), traders rely on smart contracts and self-custody wallets to carry out exchanges.
However, some still doubt whether decentralized exchanges are really decentralized, arguing that there is nothing like a complete decentralization of crypto-change platforms. But the truth is that a crypto exchange can be truly decentralized, provided it does not rely on intermediaries to complete transactions. Also, these exchange platforms are easy to create because you just need to use a reliable open-source Web3 developer, like the OpenDEX platform from OpenWare.
Note that decentralized exchanges are usually based on blockchain technology and allow peer-to-peer trading, which does not require users to seek permission to buy or sell digital assets. This also means traders can use escrow systems or proxy tokens.
#Decentralized Versus Centralized Crypto Exchanges
#Safety
While centralized exchange platforms follow very strict security guidelines, decentralized exchanges have proved more secure because they eliminate the need to deposit funds into intermediary accounts that are highly prone to hacking. With a self-custody wallet, a crypto trader has full control over his funds and every transaction.
#Prevalence
Centralized crypto exchanges are more popular than decentralized exchanges because they were the first to enter the market, but DEXs are also becoming increasingly popular among crypto traders and already have a major impact on the crypto exchange market.
#Control
Decentralized exchanges offer more control than centralized exchanges because they use peer-to-peer systems that give users full control of their accounts. Centralized exchanges give their platforms greater control over their users, which is why DEXs have become so popular today. Most crypto traders want to use exchange platforms that offer autonomy.
#Charges
While centralized exchanges charge transaction fees for using their third-party exchange services, DEXs do not have such transaction fees. Transactions on decentralized exchanges are more affordable than centralized platforms because they eliminate the middlemen.
Lastly, the decision to use either a decentralized or centralized exchange is based on two things: ease of use and control of your wallet. If you need a platform that offers you lower fees and control over your funds, a DEX is an ideal choice for you.
