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Crypto exchanges are places used for buying and selling cryptocurrencies. The range of supported currencies varies, and some platforms even accept fiat currencies. If you still haven’t started trading in these exchanges, you have two options. You can go with a centralized or decentralized platform. This article will clarify the specifics of both and help you make the right choice.
Before you start reading, here is what you’ll discover in this guide:
- Centralized Crypto Exchanges – An Overview
- Centralized Crypto Exchanges – Pros and Cons
- Decentralized Crypto Exchanges – An Overview
- Decentralized Crypto Exchanges – Pros and Cons
Centralized Crypto Exchanges – An Overview
A centralized crypto exchange (CEX) is the type where the platform monitors and processes every transaction. That means there is no tracking of your trade on the blockchain. Instead, it’s the exchange that secures your and the other party’s assets.
Let’s say that you want to trade Bitcoin for Ethereum. If you visit a centralized crypto exchange, you’ll need to register an account. That includes sharing your personal information, such as e-mail or name, with the platform. The same applies to companies that trade crypto – they will need to offer relevant business information for verification. Some platforms are even ready to increase your trading quota if you share additional personal info. Once you place the trade, the transaction occurs very fast.
Here are the top centralized cryptocurrency exchanges you can use:
Centralized Crypto Exchanges – Pros and Cons
Did you ever trade stocks? If you haven’t, you can read here for more information on how to have this exciting experience today. But if you have, you probably traded stocks on a regulated market with all relevant licenses from authorities. That’s the biggest advantage offered by centralized stock exchanges. The platforms are reliable, and they keep your assets secure during the trading process.
Here are some other benefits you can expect when trading at HEX:
- Easy to use. Although these transactions involve a third party, they are simpler from the perspective of a trader. CEX platforms offer a user-friendly interface you’ll feel comfortable using in seconds.
- Fast transaction speed. Executing your order shouldn’t take more than a second. You can finalize the transaction in a few clicks.
- Excellent liquidity. Centralized exchanges are popular, which leads to high liquidity. Market makers only increase this level, making the platform more reliable.
Although centralized crypto exchanges come with many benefits, they also have downsides. These include the following:
- Breach risks. You can find reports on multiple events when hackers stole funds from a centralized exchange. The problem is these platforms keep the assets of all users. If your funds get stolen, the assets of thousands of other traders disappear, too.
- Sharing personal info. Some users aren’t comfortable with allowing the third party to get access to their sensitive details. That’s why they aren’t comfortable with the KYC – Know Your Customer – program applied by most platforms.
Decentralized Crypto Exchanges – An Overview
The crucial feature of decentralized crypto exchanges (DEX) is they don’t use a third party. The platform won’t secure your assets. Instead, your funds will be on the blockchain throughout the process. Thanks to this, you can make a direct (peer-to-peer) transaction with the buyer/seller.
Check out the most popular decentralized currency exchanges at the moment:
Decentralized Crypto Exchanges – Pros and Cons
Decentralized crypto exchanges are nowhere as popular as CEX platforms. However, they have a strong advantage that some users appreciate. It’s the very way they work, and that’s facilitating direct transactions between users.
These are the main pros you can expect when using a DEX:
- A high anonymity level. Nobody will ask you for personal details, as most decentralized exchanges don’t even require registering for an account. The transaction will remain private throughout the process.
- A minimal hacking risk. DEX platforms apply a non-custodial fashion for user funds. That means your crypto remains in your wallet until the transaction time arrives. This minimizes the hacking risk because you remain safe even if someone breaches the platform’s servers.
- Lower fees. This depends on the exchange. However, the general rule is that DEX platforms have lower fees when compared to CEX alternatives.
Decentralized crypto exchanges come with their cons, too. Those can be:
- Slower transaction times. Depending on the required transaction, it could take minutes or hours to process.
- No fiat currencies. These platforms can’t use fiat currencies. That means you can’t buy or sell crypto for actual cash.
- Not that regulated. DEX platforms don’t need a license. There isn’t a third-party provider, which makes them hard to regulate. That’s why you should only stick to reputable platforms to minimize the risk of potential scams.
Are there any alternatives?
Both centralized and decentralized crypto exchanges come with certain advantages. But they are not without problems. This has led to the rise of alternatives such as tangle. But what is tangle? The key difference between Tangle and blockchain lies in the structure and consensus mechanism. In a traditional blockchain, transactions are grouped into blocks, which are then added to a chain in a linear order. This chain of blocks forms the basis of the ledger. Tangle, on the other hand, uses a directed acyclic graph (DAG) structure rather than a linear chain. In the Tangle network, every new transaction must validate two previous transactions. This means that when you want to make a transaction, you need to confirm and validate two other transactions in the network.
Final Thoughts
Both centralized and decentralized crypto exchanges come with certain advantages. CEX offers high liquidity and reliability since it offers a regulated trading environment. The transactions are also faster on those platforms. However, DEX is highly anonymous and enables P2P trading, which many users appreciate. It also has better protection against breaches and offers lower fees. Now that you have relevant information, don’t hesitate to choose the platform that fits your preferences!
You may also like: The Rise Of Decentralized Cryptocurrency Exchanges
Disclaimer: This article is not intended to be a recommendation. The author is not responsible for any resulting actions of the company during your trading/investing experience.
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