As a beginner in the crypto trading world, it's crucial to weigh the pros and cons of what kind of exchange you are using. One key consideration in the crypto trading landscape is the choice between using decentralized exchanges (DEX) and centralized exchanges (CEX).
In this post, I am going to walk you through the pros and cons of each type of platfrom that may help you decide what is best for you and your trading business. For full transparency, I have used both, and highly prefer to use decentralized exchanges due to, well, obviously because of their decentralized nature. But this is an unbiased opinion on each type so you can choose what is right for you. At the end of the post, I will tell you which are my favorite DEXs that I use, and which centralized exchanges I primarily use and the reasons I use them.
Decentralized Exchanges (DEX)
So let's go ahead and get it started off with my favorite kind of exchange, and that is a decentralized exchange, or DEX. Here's my quick breakdown for the DEX:
Pros
DEX operates on a peer-to-peer network, eliminating the need for intermediaries. This decentralization aligns with the core principles of cryptocurrency – trustless and censorship-resistant trading. Most of the decentralized exchanges out there are built on smart contracts so that things work without having someone in the middle.
With no central point of control, DEXs are less susceptible to hacking attacks. Users have control over their private keys, reducing the risk of funds being compromised. Now we all know DEXs have been hacked in the past, so it's not impossible, but when you are holding the money in your wallet, it cannot be stolen from the exchange itself, unlike a centralized exchange.
Another benefit is that DEX platforms are accessible to anyone with an internet connection. Some DEXs, primarily futures exchanges like ApolloX, cannot be accessed from a United States IP address, but that can be easily fixed with a VPN. No true decentralized exchange will ask for your KYC information, so you will be staying as anonymous as possible.
Cons
So now that I have talked about the awesome benefits for using a decentralized exchange, let me get into some of the more negative things:
Most DEXs have much lower liquidity compared to centralized their counterparts. This can impact the speed and efficiency of trades, especially for less popular tokens. Slippage is a big issue on many of these exchanges due to that lack of liquidity. If you have ever followed and read any of my posts talking about the Hive internal on-chain DEX, then you know what I am talking about.
Some DEX platforms may have a steeper learning curve for beginners. Navigating the decentralized landscape and understanding the different protocols may require additional time and effort. If you are trying out all kind of different exchanges on different blockchains, you will have to have wallets and gas tokens for all of them, plus know which one you are using at the time. If you get yourself spread out too thin, you will get confused pretty quick. It's best to find one that works for you and stick to it.
Centralized Exchanges (CEX)
So for this unbiased review, I will talk about the pros and cons of using centralized exchanges. These are companies that act like banks and brokers for your cryptocurrency.
Pros
CEXs typically have higher liquidity due to their centralized nature. This results in faster transactions and a smoother trading experience, particularly for well-known cryptocurrencies. The slippage issue that I mentioned with DEXs doesn't play as much of a factor either.
Centralized exchanges often provide more user-friendly interfaces, making it easier for beginners to navigate and execute trades without a steep learning curve. This is because they are usually backed by venture capitalists and can afford big development teams where some decentralized exchanges are build by sometimes one or two developers.
CEX platforms usually offer customer support services, providing assistance in case of issues, some are better than others in regards to customer service, but that is a whole other topic. This support can be reassuring for those new to cryptocurrency trading, so if you feel more comfortable with someone holding your hand, then a centralized exchange may be better off for you.
Cons
Centralized exchanges become lucrative targets for hackers due to the concentration of assets. Security breaches can lead to significant financial losses for users. Even the largest exchanges have had hacks in the past, but most carry some kind of insurance to refund customers of any loses, at least they should.
When using CEXs, traders need to trust the platform with their funds. This centralized control contradicts the ethos of decentralization. This causes another layer of security issues because you won't know if your funds are stolen, whether it was an insider, or an outside hacker. Really this is no better than using a bank, and is not what crypto is all about.
Wrap Up
In the dynamic and ever changing world of cryptocurrency trading, each approach – decentralized and centralized – has its own set of advantages and drawbacks. Beginners should carefully consider their priorities, whether it be increased security, user-friendly interfaces, or global accessibility. Striking a balance between these factors is crucial for a successful and fulfilling trading experience. As you embark on your crypto journey, stay informed, stay cautious, and always be ready to adapt to this ever-evolving landscape.
My Exchanges Of Choice
Like I said in the beginning of the post, I am partial to using DEXs. I personally trade on the ApolloX.finance exchange which has on-chain futures on Ethereum, Binance Smart Chain, Arbitrum and more. I personally trade on their V1 order book exchange using BSC for most of my crypto trades, but then use their V2 version to trade FOREX pairs like EUR/USD and GBP/USD. That is for my leveraged day trading.
For regular decentralize token swaps, I like using Pancakeswap and Apeswap on Binance Smart Chain, and Quickswap on Polygon. I do not use Ethereum at all due to the high gas fees, plus I can do anything I need to on these other chains.
I also trade HIVE/HBD on the internal DEX, which is unique to other blockchains as it is built in to the layer 1 functions without having the need for any smart contracts. The primary problem with trading here is the lack of liquidity. So swing trades work well here. @ecency has the best exchange interface that you can access directly from your wallet.
As far as the centralized exchanges, I only use them as an offramp. I am one that likes to earn my crypto instead of buying it, but if I do buy, I move it off of the centralized exchange as soon as possible. Being in the US, I have to be very cautious how I offramp due to tax purposes. Taxation is theft, so that's another reason I like the DEX options. But I go out using Robinhood using USDC either on Polygon or Solana because of the cheap fees. Then I sell the USDC, dollar for dollar, no cap gains taxes, and spend on my Robinhood card.
I used to use Coinbase in the very same way, but the reason I went with Robinhood is that there are no fees on their end of things, which is nice and lets you keep more of your money. Plus I can also trade stocks and options there if I am so inclined to do so.
So there you have it, my opinions on decentralized vs centralized, which ones I personally use in my own trading. Hopefully this gives you a good idea on what is best for you.
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Disclaimer:
The information in this trade journal is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
