Centralized Vs Decentralized Cryptocurrency Exchange

David Miller
David Miller

You need to remember that cryptocurrency exchange is a crucial part of the crypto ecosystem while exploring popular cryptocurrency exchanges. Have you ever wondered what other option you have for purchasing or selling your digital currency? While controversies have dogged them, there is no denying that these exchanges have played a significant role in the cryptocurrency’s development over time. Although centralized exchanges like Binance and Coinbase are among the most popular cryptocurrency exchanges, a keen interest in decentralized exchanges is significantly growing among crypto users.

So, if you are wondering what the differences are between centralized and decentralized exchanges, this write up will give you an in-depth insight into it

Cryptocurrency Exchange

The term “cryptocurrency exchange” refers to a platform where you can purchase and trade cryptocurrencies. A crypto exchange list down several crypto coins and features their laws and restrictions. However, all of them offer seamless access to the most popular cryptocurrencies.

However, popular cryptocurrency exchanges are of two types,

  • Centralized
  • Decentralized

So, let’s look at what each kind of cryptocurrency exchange has to offer.

Centralized Cryptocurrency Exchanges

A centralized cryptocurrency exchange is a digital platform where digital currencies can be bought and sold. You must trust a third party to overlook the transaction and guard the possessions on behalf of its traders. Transactions of a centralized exchange are not recorded on the blockchain. So, you must offer your details for verification in such exchanges. If you are a corporation, on the other hand, you must give the exchange with your corporate details to authenticate your account.

Centralized crypto exchanges offer cryptocurrencies and pairs at regular pricing to their users in most situations. Cryptocurrency users commonly use these platforms, and you can discover one of them over the web. Binance, Coinbase, and other centralized cryptocurrency exchanges are among the most popular cryptocurrency exchanges you can trade on.

Decentralized Cryptocurrency Exchange

A decentralized cryptocurrency exchange is identical to a centralized one, except that there is no third party to rely on. The funds in this transaction are all kept within the blockchain.

Unlike a centralized crypto exchange’s I Own You-based mechanism, decentralized exchanges allow peer-to-peer (P2P) trading using proxy tokens, assets, or an escrow system.

 Comparison b/w Centralized & Decentralized

Now, when you have explored the two types of popular cryptocurrency exchanges, let us discuss what makes them different from each other.

Security

When compared to centralized exchanges, decentralized exchanges provide even higher security. Trading on centralized cryptocurrency exchanges carries a significant danger of being hacked. Hackers could hack a third party that holds the private keys to gain access to all users’ cash, and you might lose your entire investment.

Several breaches have happened in the past, and centralized exchanges have worked hard to improve their security for their customers. However, there is no possibility of a decentralized exchange being hacked and losing cash due to such acts.

Decentralized systems are safer since users cannot lose their cash for a single reason unless it is linked to the DEX gates.

Several centralized exchanges have now introduced decentralized accounts for their users to address this security issue.

Control

The third party that manages the exchange in a centralized crypto exchange retains the most authority over your account. On the other hand, you retain complete control over your account with a decentralized exchange.

It is why decentralized exchanges are gaining popularity, but it is equally to blame for the increased complexity of such platforms.

Popularity

Because they were the first to join the market, the top 10 crypto exchanges within the centralized category are now more popular than the decentralized ones. Even though decentralized exchanges offer myriad benefits over their centralized equals in terms of wallets and accounts, they still have a long way to go in terms of popularity. It is because centralized exchanges have a more robust infrastructure and liquidity.

However, the fame of decentralized exchanges will rise steeply as more companies enter the market. Many businesses focus on creating decentralized exchanges, like Binance’s decentralized exchange.

Fees

Centralized exchange charges its user in exchange for their services. Depending on their features, these prices differ from one service provider to the next. However, decentralized exchanges charge either nothing or very little for matching orders on the blockchain.

Features

Centralized cryptocurrency exchanges have the edge over decentralized ones in terms of functionalities. You may employ margin trading, portfolio management tools, and several sophisticated order kinds to improve your trading experience.

Decentralized crypto exchanges have access to a restricted number of order types and do not have access to margin trading or other unique functions. Perhaps better functionality will be available when more complex decentralized platforms enter the market.

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Regulation

A centralized exchange is simpler to oversee if compared to a decentralized exchange. Centralized platforms need a license and must follow the regulations of their region’s local regulatory authority.

Decentralized exchanges, unlike centralized exchanges, are not regulated since it is challenging to do so due to its distributed blockchain. It implies that even if a government prohibits the operation of centralized crypto exchanges, decentralized exchanges can continue to function in certain areas.

Speed

Decentralized platforms are slower than centralized ones. Orders are executed in 10 milliseconds on average on centralized crypto exchanges. However, a decentralized exchange takes at least 15 seconds to match and fulfil an order. Furthermore, a decentralized exchange might take up to one minute to complete an order, which is an excellent amount of time compared to its centralized version.

Final Thoughts

So, if you are a newbie in the crypto space and are not investing a considerable amount, it is wise to start with the centralized exchange to get comfortable. But if you already know about cryptocurrencies, and don’t mind getting your hands dirty while knowing your private key, then a decentralized exchange is a better option for you.

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