CEXs vs DEXs
Updated: Apr 14
With the birth of cryptocurrencies, also known as digital currencies, and the spread of its first protocol, Bitcoin, the need to have platforms that would allow exchange among users arose. Just like with the traditional fiat coins.
History of crypto exchange
The first bitcoin exchange that emerged was BitcoinMarket, announced on Bitcointalk (a public forum where blockchain enthusiasts, developers and crypto investors host Bitcoin-related discussions) in 2010 and launched the same year.
Here is an article about the history of crypto exchanges.
It was the first of many. Over the years, the enthusiasm for cryptocurrencies has grown increasingly: projects, protocols, utility tokens and dedicated blockchains have been created, and therefore, the platforms where users can exchange their cryptocurrencies have also increased.
Originally, these exchange platforms were born under “crypto exchanges”. In conjunction with the birth and spread of DeFi, which best expresses the concept of decentralization on which protocols and cryptocurrencies are based, there was the need for a different label which would emphasize the centrality of a company or organization behind them.
Today, we have centralized exchanges highlighting the characteristics of CeFi and decentralized exchanges operating on DeFi platforms.
What’s the difference between centralized and decentralized exchanges?
Although the popularity of DEX did not reach the level of their centralized counterparts for a long time, they occupy an important role in the storyboard of cryptocurrencies, especially during the DeFi hype, the daily trading rate was overcome. But what are the real differences between the two, and why choose one over another?
As a rule, centralized exchanges operate under regulatory supervision and have KYC and AML policies built in, and they require users’ private keys to their integrated wallets and addresses. In short, they keep your funds for you and directly access the stored crypto assets. At the same time, CEXs are user-friendly platforms that allow beginners to buy and manage digital currencies more easily. Their trading speed is very high because the network nodes do not need to be updated in real-time and have “fixed” trading fees because they work on a matchmaking algorithm which regulates demand and supply as an orderbook, processing thousands of orders per second. Due to the high trading volume, CEX also has high liquidity. Furthermore, withdrawals and deposits in fiat currency are granted as long as you have an open bank account. There are some cases on which CEXs act as a black boxes.
A DEX also offers these services but is free from government requirements or regulations, and no third party is involved. Each user has full access to its assets and private keys. There is no authentication procedure with personal documents, and anonymity is guaranteed. This can easily lead to malicious operations from shady developers.
However, many CEX has recognized the advantages of decentralized exchanges and are now working to integrate DEX features.
Can you really make a choice between the two?
As we have analysed, there are important differences between centralization and decentralization and choosing whether to use a CEX rather than a DEX is not a simple matter. It depends on the needs of each.
The crypto industry has become very approachable, and all that remains is for you to do some extra research and then make your move. The entire sector is advanced enough these years to offer alternative methods like hybrid finance, or CeDeFi, merging the best features of CeFi and DeFi, guaranteeing you more transparency and decentralization.
What do you think about it? Swap your opinion with the community of Discord and Telegram.