INTRODUCTION
Hello everyone, i hope you guys are doing well wherever you are. In this article, we will try to look at the meaning and differences between Decentralized exchanges ( DEX ) and Centralized exchanges ( CEX ).
As a cryptocurrency user, you should be familiar with the crypto acronym "DEX" and "CEX" as they are among the most common crypto slangs or acronyms in the space. This slangs or acronyms as common as it is in the crypto space, a chunk crypto users don't even know what it means, what it is and what their functions are. Although, they may have used their services or still using them even now without knowing. Let's continue by defining them.
DECENTRALIZED EXCHANGES
Decentralized exchanges, also known as DEXs, are peer-to-peer marketplaces where cryptocurrency traders make transactions directly without handing over management of their assets to the other party or intermediary. These transactions are eased through the use of self-executing agreements written in code called smart contracts. They does not require signing up or personal details from users, all it requires to use DEXs is just cryptocurrency wallet and you are good to go. Some of them include Pancakeswap, Uniswap, Quikswap, Trader Joe, Dexlab, Raydium, etc. Although, most only offer service to just a particular Blockchain we also have ones working on multiple Blockchain.
CENTRALIZED EXCHANGES
Centralized exchanges also called CEXs are marketplaces where cryptocurrency traders transact with indirectly by handing over their assets to intermediaries which are the Centralized exchanges.They work just like a traditional bank do, by keeping users assets ( cryptocurrency) safe and provide trading options. They also have largest trading volume as most new investors and professionals prefer them. Some of these exchange are as follows: Binance, Coinbase, the defunct FTX, MEXC, HUOBI, Gate.io, Bybit, OKX, Kucoin etc .
DECENTRALIZED VS CENTRALIZED EXCHANGES
Decentralized exchanges take out the use of intermediary or escrow service in cryptocurrency transactions, because they function as peer to peer dealing by which the users are fully in charge of their assets and transactions are executed based on smart contracts. DEXs are mostly used by professional cryptocurrency users that can handle the safety of their assets themselves without surrendering it a third party.
Centralized exchanges involved intermediary and escrow service to execute transactions. Users usually go through a Know your customer (KYC) procedure before they can fully access their services, they are regulated by the government. They offer fiat to crypto trade and vice versa which makes popular among the professionals and amateur cryptocurrency traders
PROBLEMS FACED BY USERS
As useful as the exchanges are, they are some problems users have faced in the past or may still face while using the exchanges. Some of the problems are highlighted below:
DEXs: As DEXs is fully decentralized, the users stand the chance of losing their assets if not careful, either from connecting to malicious website or misplacing their security phrase. Using DEXs may be sometime complicated for users which may also cause lose of funds. We have also heard of developers stealing crypto pools in DEXs. Hacking is also a major problem being faced.
CEXs: While CEXs on the other hand provide users the opportunity to recover their account if they happen to forget or misplace their security details to the wallet account.
Most recently, cryptocurrency users all heard about the FTX bankruptcy which alot of cryptocurrency users including me lost their assets. Although after a long legal battle they are now trying to return their customers assets. CEXs are also not free from hacking scandals.
Conclusion
The exchanges are very weighty in the cryptocurrency space as their input to the growth of cryptocurrency adoption cannot be quantified. I cannot specifically say which is better because of the different factors associated with both exchanges. So as a cryptocurrency user either amateur or Professional, you should be able to DYOR and choose the suitable one for you.