Every user must use a crypto exchange to trade cryptocurrency assets. Did you know, however, that there are two distinct kinds of crypto exchanges? One is centralized and the other one is decentralized. Before we get into what a centralized and decentralized crypto exchange is, let’s first understand what a crypto exchange is.
A Cryptocurrency Exchange is a website where traders can exchange, purchase, or sell cryptocurrencies quickly. A crypto exchange typically supports over 20 different currencies to enable smooth trading. Each cryptocurrency exchange has its own set of rules and regulations in place to ensure that its users have access to digital currencies.
What is a centralized crypto exchange?
Basically, it’s a marketplace where you can buy and sell virtual currencies like cryptos. A third party is employed to secure and monitor the transactions on behalf of the user in these sorts of platforms. These transactions are not recorded by the blockchain system. Before using the tools supplied by centralized crypto exchanges, users are required to verify their personal information.
They must supply corporate information for verification, if the user represents a company. Customers on these platforms can withdraw a bigger amount of money, as verified users are given a larger withdrawal limit in addition to other customer service if there is a technical problem. Many people enjoy using centralized cryptocurrency exchanges since they provide flat pairs at consistent prices. It is a user-friendly and simple solution to help businesses embrace cryptocurrencies while still adhering to the strict standards that investors demand.
What is a decentralized crypto exchange?
A decentralized cryptocurrency exchange (DEX) is similar to a centralized crypto exchange, but it does not require the involvement of a third party. Because the funds in these exchanges are kept on the blockchain, they aren’t reliant on anybody else.
These exchanges, like Binance and OKEx, allow peer-to-peer trading (P2P) using an escrow system or proxy tokens. This is not the same as the IOU system employed by traditional cryptocurrency exchanges.
Security provided by the 2 systems
When it comes to security, centralized exchanges have very rigorous standards. Decentralized crypto exchanges, on the other hand, provide greater protection, since centralized exchanges are frequently targeted by hackers. Many security improvements have been made by centralized exchanges as a result of their past hacking experiences.
You should consider though that there is a smaller chance of losing funds in a decentralized exchange due to such activities. Decentralized exchanges are less prone to failure than their counterparts, since they are immune to single-point failures or multiple losses of funds.
Which is more popular?
At the moment, centralized crypto exchanges are undoubtedly more popular than decentralized ones. Because they were the first to enter the market, centralized exchanges offer greater liquidity and superior infrastructure.
Although there have been no significant crypto exchange hacks reported, the popularity of centralized cryptocurrency exchanges could drop significantly over the next few years. With time, more decentralized crypto exchanges will enter the market, which will unquestionably have an important influence on their success.
When it comes to features, centralized cryptocurrency exchanges have a big advantage over decentralized crypto exchanges.
Margin trading, spot trading, portfolio management tools, and other services are all available through centralized exchanges. DEXs are unable to provide margin trading, and they have limited options for orders.