Comparison of Centralized and Decentralized Exchange
The need for a digital currency system was long felt due to a number of reasons like a volatile economy and the depreciating price of many countries during the last economic depression only hastened this process. Later cryptocurrencies emerged as a popular means of digital or virtual currency among people that is secured by the means of cryptography. There are several benefits that cryptocurrencies offer such as they emerged as secured digital assets, that became popular among users as they are nearly impossible to counterfeit or double-spend.
What is a Crypto Exchange?
Crypto exchanges are trading platforms that allow people to engage in the trade of cryptocurrencies. The functioning of crypto exchanges is somewhat similar to a stock exchange, where crypto exchanges offer a variety of services to people. Buying, selling, and staking cryptocurrency assets are some of the services offered by these exchanges.
Cryptocurrencies are a completely new thing to many people out there and there are instances when people indulge in crypto trading without knowing the nuances of it. So, here we will be discussing and comparing the differences between centralized and decentralized exchange.
What are the different types of Crypto Exchanges?
Majorly there are three different types of crypto exchanges found
- Centralized Exchange (CEX)
- Decentralized Exchange (DEX)
- Hybrid Exchanges (HEX)
Since Hybrid Exchanges are very low in number, therefore we will have comparison between Centralized exchange and Decentralized exchange.
What is a Centralized Crypto Exchange (CEX)?
Centralized Crypto Exchanges (CEX) are those crypto exchanges, that require users to get registered and verify their personal information through the KYC process. CEX functions as a third-party facilitating trade of cryptocurrencies between a buyer and a seller. As a Crypto enthusiast person intend to develop a crypto exchange that can be managed and controlled, then opting for Centralized Exchange development can be a good option. CEX offers a wide range of facilities like buying, and selling, and also newer features like staking of crypto assets. As the name suggests, these exchanges are centralized and they are bound to follow certain federal laws and guidelines.
CEX offers users a custodial wallet to operate and through that, they can trade from either fiat-to-cryptocurrency or crypto-to-crypto tender. In other words, a CEX would know about your trading transactions like how much and in which crypto you trade.
What is a Decentralized Crypto Exchange (DEX)?
Decentralized Cryptocurrency Exchanges (DEX) are those crypto exchanges that are run by a group of computers on a peer-to-peer mechanism having no centralized governing authority. Crypto enthusiasts who know the nuances of the crypto world very well, generally prefer Decentralized Exchange development to develop a crypto exchange. A Decentralized Exchange requires the use of an escrow system or proxy tokens, which are much different in terms of function when compared to CEX.
DEX serves as a hassle-free alternative to the traditional CEX, as DEX does not has any such mandate which requires users to create an account for trading. Therefore, the option to remain anonymous is available in DEX. DEX offers access to a wide variety of cryptos and cryptos which are rarely found over CEX can be found here, but the down part is that majority of them do not support fiat-to-crypto trades.
Money is hard-earned and time is precious, therefore making a choice between different exchanges plays a key role. Crypto exchanges function as a matchmaker between traders and which one is best for you depends upon your needs. No doubt Centralized exchanges are popular among the masses due to their speed and features. But crypto experts at Rejolut say that the easy-to-use features of CEX would provide a great trading experience to a novice. Whereas, a seasoned expert of crypto would certainly want to dive deep into the world of cryptos by choosing a Decentralized exchange.