Through the previous articles, perhaps you have somewhat understood what cryptocurrency is and its use compared to fiat money. So if you really believe in that project’s ecosystem, how can you buy their Coin/token? That is through cryptocurrency exchanges
Centralized exchange (CEX) is an exchange that is managed by a company/institution, all assets you deposit are managed by that company/organization.
In many cases, it is much safer to deposit money in a bank than to keep one’s own assets. Banks will have many security measures in place to keep your assets safe. Banks can also provide you with services such as loans because they have large amounts of money and have a trusted relationship with their customers.
In this case, a centralized exchange is similar to a bank. You can store your assets on the exchange and trust the third party – the company/organization that manages the exchange to store and protect your assets.
The 3 most trusted and popular CEXs include:
- Trading volume: ~ $21B per day
- Liquidity: 813
- Weekly Visits: 34 millions
- Markets and Coins: 400 Coin/Token with more than 1600 trading pair
- Coinbase Exchange
- Trading volume: ~ $5.6B per day
- Liquidity: 716
- Weekly Visits: 4.1 millions
- Markets and Coins: 148 Coin/Token with 437 trading pair
- Trading volume: ~ $3.2B per day
- Liquidity: 738
- Weekly Visits: 5.4 millions
- Markets and Coins: 307 Coin/Token with 440 trading pair
Decentralized exchange (DEX) is a trading market that does not rely on an intermediary service to store and manage customers’ assets. Instead, transactions take place directly between users (a peer-to-peer network) through an automated process.
In other words, a decentralized exchange gives control of assets and transactions to users, eliminating the middleman point that causes many problems such as hackers, scams. Besides, tax or confiscation of funds will be difficult to happen when trading on decentralized exchanges. Eliminate intermediaries to increase security, eliminate problems like fraud or Hack.
There are two types of dex, Swap and Orderbook. While the swap will take the current price of the coin/token for exchange, the orderbook allows users to set the price they want to buy/sell like a centralized exchange.
Each dex usually only supports a certain blockchain. For example, you will exchange ERC20 tokens on Uniswap or Sushiswap, SPL tokens on Jupiter or 1SOL
Top 3 decentralized exchanges include:
- Trading volume: ~ $2.9B per day
- % Market Share: 0.0822%
- Trading pair: 647
- Type: Swap
- Trading volume: ~ $2.8B per day
- % Market Share: 0.0805%
- Trading pair: 10
- Type: Orderbook
- Trading volume: ~ $935M per day
- % Market Share: 0.0266%
- Trading pair: 3543
- Type: Swap
The most basic difference between a centralized exchange (CEX) and a decentralized exchange (DEX) is evident through the following 3 features:
Centralized exchange users make deposits to the exchange to facilitate trading. These funds are controlled by an intermediary trading service. This means that the order book, as well as custody, is in the hands of a centralized exchange platform service.
In a decentralized cryptocurrency exchange, users trade directly with other traders without a central server. There is not a centralized platform service that owns the order book and custody. Thus, the funds are controlled by the users and the parties involved in the platform.
Several centralized exchanges used to allow anonymous trading accounts on their platforms. However, new government regulations that have emerged in recent months have resulted in strict compliance with KYC and AML laws. It is very difficult to trade anonymously on a centralized cryptocurrency exchange platform. In contrast, a decentralized exchange is a place where everyone can stay anonymous.
The users of the centralized exchange depend on the platform to validate and authorize their transactions. In a way, the platform is a third-party intermediary that provides trusted cryptographic exchange services.
With a decentralized exchange, you are trusting a system consisting of many operating nodes, without depending on an intermediary.
Decentralized exchanges do not keep users’ funds and no organization interferes with the processing, so it is very difficult for the exchange to be hacked. Meanwhile, historically, there have been many attacks on centralized exchanges such as Bitfinex, Bittrex, etc.
This is a big advantage of decentralized exchanges. Many decentralized exchanges offer seamless integration with popular hardware wallets like Ledger Nano S or Trezor to ensure much safer transactions.
Users can send coins directly from their hardware wallets to the smart contracts of many decentralized exchanges. With centralized exchanges, there is no way for users to enter their own private key to transfer coins from the hardware wallet to the exchange. Because if they do, there is a very high chance that they will be scammed or track the keyboard.
A decentralized exchange is owned and controlled by all the parties involved so there is no centralized corporation that has custody of the client’s funds. Control of money is always in the hands of users thanks to a peer-to-peer network structure. Transactions take place between parties in the network using smart contracts, which can only be controlled by the private keys of the parties. Users control their private keys as well as their capital at all times with a decentralized exchange.