People thinking about buying or selling cryptocurrencies should come across an exchange. This is the place through which all transactions in the blockchain ecosystem pass. If a user has even the slightest understanding of cryptocurrencies, he should know about such platforms as Coinbase, Binance, Kraken, and others. Such exchanges are centralized (CEX) and apply a model similar to traditional financial institutions. They offer several advantages such as high liquidity and others.
With the rapid development of DeFi technologies, decentralized exchanges (DEX) have begun to appear on the horizon. These companies have completely overhauled the approach to creating such platforms and now offer investors to conduct transactions with pegged asset DEX with less commission and more confidentiality. Crypto enthusiasts often face a difficult choice between CEX and DEX. In this material, you can learn about the benefits and drawbacks of each exchange and pick the best option for yourself.
What is a decentralized exchange?
DEX is a completely decentralized platform that has eliminated barriers between investors. There are no intermediaries, and all transactions take place directly between clients. Crypto enthusiasts must take care of the security of their digital assets. Users have a unique secret code to access crypto wallets. In case of loss, access to assets will be lost.
At the same time, decentralized exchanges provide a multi-layered security system supported by a smart contract network. All investments are stored on virtual databases, which offer complete protection.
Advantages of applying decentralized exchange
Speaking of DEX, the list of benefits these exchanges offer is enormous. Below, crypto investors can find out about several features that will interest them.
- Low fees. Because there is no need for intermediaries, the fees are deficient. This allows conducting many transactions without spending vast amounts of money.
- No KYC. Another advantage of DEX is complete anonymity. Customers do not need to provide any documents to verify their identity. It enables remaining completely anonymous.
- Massive token selection. There is an enormous selection of tokens available on decentralized exchanges. Each digital asset can be easily bought, sold, or swapped for another.
As you can see from the information above, DEXs offer many benefits to crypto investors. But there are also some disadvantages. The main drawback is the poor liquidity amount. This can cause some lengthy transaction processing. But for the sake of low fees, people can endure.
What is a centralized exchange?
CEX are, for the most part, officially registered companies that comply with all legal regulations. They are trying to provide access to everyone to buy, sell, and trade stablecoins and altcoins. Such platforms are regulated by relevant government authorities, which ensure their stable operation. The system monitors all financial operations and blocks illegal or suspicious transactions.
Crypto investors do not have to worry about the safety of their assets because all cryptocurrencies are stored in trading wallets or in storage, offline wallets. The primary profit centralized exchanges receive from the fees traders pay during the transfers on the site. If clients have any questions or problems, they can always contact support. Crypto enthusiasts can reach CEX managers via email, chatbots, or phone numbers.
Read Also: Important Tips When Choosing a Crypto Exchange
Benefits of using centralized exchanges
Although centralized exchanges are pretty expensive to use, they offer several benefits. Below, there is a list of the top advantages of CEX.
- Safety. Previously, centralized exchanges experienced huge problems with providing a multi-layered security system. But over the past few years, everything has changed. Company officials began to invest considerable sums in the insurance of their assets.
- Easy-to-use. All CEXs have a straightforward interface that even a grandmother can make a transaction. All financial operations also take place in a matter of seconds.
- Liquidity. Platforms have large stocks of assets and fiat. It is necessary for users to conduct a top-up and cash-out procedure. Many investors believe that liquidity is their trump card.
CEXs offer clients many benefits that can make using cryptocurrencies an absolute pleasure. But not every investor is ready to put up with high commissions on the site. That’s why people have to look for other places for financial transactions with cryptocurrencies.
Hello, My name is Shari & I am a writer for the ‘Outlook AppIns’ blog. I’m a CSIT graduate & I’ve been working in the IT industry for 3 years.