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Centralized and Decentralized Crypto Exchanges (CEX and DEX)

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Centralized and Decentralized Crypto Exchanges (CEX and DEX)

Cryptocurrency trading is gaining popularity, owing to cryptocurrency trading being ways simpler to get started with than other forms of digitized financial investments. Like stocks and indices, traders can buy or sell assets on the crypto market.

The only difference is that while stocks and indices often require a broker to stand as middlemen between investors and the market, almost anyone with an internet connection can get started trading cryptocurrencies.

Before jumping into the sometimes turbulent waters of cryptocurrency trading, it is important to be aware of a few things. One of such things is the kinds of cryptocurrency exchanges currently available to choose from.

These cryptocurrency exchange types include

  • Centralized exchanges
  • Decentralized exchanges
  • Hybrid exchanges

What Are Centralized Exchanges (CEX)?

Centralized exchanges are the most common types of cryptocurrency exchanges. They are cryptocurrency exchanges in which a central body is in control. In centralized exchanges, every single order/trade is properly recorded and cataloged to ensure the security of the user’s assets. Here are a few take-away points about centralized exchanges

  • Centralized exchanges usually accept both crypto-to-crypto trades, as well as government-issued currency or fiat in some cases.
  • It is easy to get confused by the word ‘centralized’ exchange. Since the main problem cryptocurrencies themselves aim to solve is that of centralized finance.
  • Centralized exchanges are ‘centralized’ in that they stand as middlemen to help users conduct transactions.
  • Without centralized exchanges, it is possible to lose hundreds of thousands of dollars when mistakes of one form or the other occur. Centralized exchanges reduce the likelihood of this happening.
  • Centralized exchanges offer customer support, in case their customers need assistance.
  • As a disadvantage, a centralized exchange answers to the government of the countries in which they operate. A centralized exchange has the power to freeze or take control of users’ assets.

What Are Decentralized Exchanges (DEX)?

Decentralized exchanges are blockchain-based services that are truly decentralized, as their name suggests. This means that there is no central body overseeing the platform. This allows for greater freedom over one’s finances.

Image: https://www.shutterstock.com/image-vector/vector-decentralized-cryptocurrency-exchange-principal-scheme-1517334293

Here are a few pointers as to what decentralized exchanges are.

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  • The trades on decentralized exchanges are automated and executed via smart contracts.
  • No KYC is required. This means that users of a decentralized exchange have the privilege of being completely anonymous.
  • The largest DEX is currently Uniswap which was created on the Ethereum blockchain in 2018, by Hayden Adams

Decentralized exchanges, having many advantages also have major disadvantages worth mentioning. Some downsides to decentralized exchanges include

  • Slight mistakes like picking the wrong options in an ongoing exchange, or getting addresses wrong can lead to huge, permanent losses.
  • The anonymity in decentralized exchanges means that lost funds or assets are completely untraceable.
  • It is impossible to trade using government-issued currency (fiat)

What Are Hybrid Exchanges (HEX)

Hybrid exchanges as their name suggest, are exchanges that take advantage of the advantages of decentralized and centralized exchanges while avoiding some of their drawbacks.

Hybrid exchanges are a new development in the world of crypto exchange platforms and are still under development. The most popular examples of hybrid exchanges include Nash and Qurrex

Adekunle Joshua is a cryptocurrency writer. He has a deep understanding of the technology and how it can be used to improve the world. James is a strong advocate for using cryptocurrency to make the world a better place. He wants to help people understand the technology and use it to improve their lives.

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