Blockchain technology is built on two systems of exchange: decentralized and centralized. A centralized exchange is the most common system of trading and is the system on which the traditional banking system is built. On the other hand, a decentralized exchange is the new banking system on which new exchange platforms are built.
The significant difference between DEX and CEX is the presence of a middle man in CEX. On the one hand, there are no middlemen in DEX, as users fully control their funds. On the other hand, users are not in control of CEX. Apart
From this, there are other differences between DEX and CEX, which include the differences in how they trade. Thankfully, this article discusses the differences between trading on DEX and trading on CEX.
Trading on DEX
DEX platforms like Uniswap, DDEX, and Bancor are built on technology that does not involve a third party in its engagement. The technology is built to hide users’ identities as it doesn’t require KYC processes before carrying out transactions.
You must know that several people consider DEX a safer option than CEX because they’re non-custodial. They’re non-custodial because they don’t have a central data store. For this reason, it is difficult for hackers to gain entry into users’ info and divert their funds.
Trading on CEX
CEX Centralized Exchange, on the other hand, functions just like the traditional banking system, where the bank controls users’ funds. In an actual sense, this is an advantage for centralized platforms like Binance because users’ funds can be refunded in hacking cases.
Another thing you should know about CEX is its large volume of trading. For instance, Binance has over $30 billion in trade volume in a day. This feature makes it easy for users to seamlessly transact large amounts of funds.
DEX and CEX: The Pros and Cons
Centralized Exchange (Pros)
Large trading volume
CEX is known for transacting a large number of funds simultaneously. This is an advantage for users who wish to send a large volume of money seamlessly.
Ease of use
CEX can be easily used as compared to DEX. CEXs have a relatable user interface and lite versions to make trading easy for users.
CEXs do not only allow you to trade; you can trade, stake, and lend funds on CEXs.
CEX supports fiat to crypto on and off-ramps and vice versa. It means that you can buy bitcoins with the dollar.
Centralized Exchange (Cons)
CEXs use KYC protocols and require users to fill in their details for future transactions. So, CEXS is not a good option for traders who wish to remain anonymous in their transactions.
CEXs are not as secure as DEXs because they can be easily hacked. This is because users’ info is stored in central data and can be easily accessed by hackers.
Decentralized Exchange (Pros)
Unlike CEXs, you don’t register your identity before transactions. Hence, your identity remains hidden when you trade on decentralized exchange platforms.
DEX is more secure than CEX. This is because they don’t have a central data storage system for their users. So it is difficult for hackers to hack into the system and divert users’ funds.
No middle man
Unlike CEX, In a decentralized platform, you don’t need an intermediary to carry out transactions.
Decentralized Exchange (Cons)
DEXs don’t transfer as fast as CEXs as they face scalability issues.
To Wrap It Up
For anonymity’s sake, decentralized platforms are often preferred over centralized ones. This is because DEXs are secured, allowing for privacy among users.