A Comparison Between Centralized Exchange (CEX) Vs. Decentralized Exchange (DEX)
Before getting into the centralized vs. decentralized cryptocurrency exchange debate, let’s first understand what both are and how they work. A centralized exchange, as mentioned above, works in a similar fashion to a traditional bank. CEX, like a bank, has a central authority that looks over all the financial actions taken on the exchange. Other features include: It offers a crypto wallet that can be used to store crypto assets. It usually facilitates users with high liquidity, what with its vast pool of traders. It maintains centralized control over all the financial exchanges and users’ wallets to enforce the regulation.
What is a Centralized Exchange?
How Does a Centralized Exchange Work?
Centralized exchanges allow users to buy and sell crypto for fiat currencies like the US dollar, or also for other crypto assets like Bitcoin. They are present as a third party in transactions between buyers and sellers to authorize the trade and also ensure security. So they essentially operate as brokers and custodians, protecting your assets and the trades in general.
Unlike centralized crypto exchanges, on DEXes, there is no central authority exerting control over your trades. No single authority figure or institution is in charge of your funds, and instead smart contracts and DApps or decentralized applications are in place to automate all transactions. Given the smart contracts in use are efficiently created and have been through the proper security audit procedures, decentralized exchanges can ensure even more security than centralized exchanges.
What is a Decentralized Exchange?
How Does a Decentralized Exchange Work?
Decentralized crypto exchanges use blockchains to facilitate transactions, and use either an AMM (automated market maker) or an order book model. DEXes may provide quicker and more costefficient transactions compared to CEXes. How do they achieve this? By removing the need for centralized authority and any intermediaries that would otherwise demand a part of the transaction fees and take longer to facilitate a trade.
Centralized Exchange
Centralized Exchange vs. Decentralized Exchange: A Comparison
Decentralized Exchange
There is a central authority to control all the transactions and user funds. There is no central authority, and the exchange usually matches buyers directly with sellers.
More vulnerable to cybersecurity threats.
If smart contracts are coded right, DEXes offer increased security. Regulations are set by the central figure that is followed in every transaction. With the lack of a central authority, regulations may be harder to implement.
CEXes usually have higher liquidity Liquidity might be lesser than CEXes.
Binance, WazirX, Coinbase
Uniswap, PancakeSwap