Decentralised Exchange Vs Centralised Exchange. - Part 1
So many things have really developed and grow in the crypto world that has really been fast developed which I strongly believe this is just actually the starting point. So many exchanges have come up over the years ranging from the Decentralised exchange and the centralised exchange. One of the things I have actually come to discover is that a whole lot of people didn't really know much about how the crypto exchange works and not only that but also understanding the difference between Decentralised and the centralised exchange. Today I will talking about it. So stay tune.
Introduction To The World Of Crypto Exchange
For many of us that have really been hearing about crypto exchange but didn't really know much about what it really is and how it actually operates. Well this post today is for you.
When we talk about cryptocurrency exchanges, we mean a digital platform that creates this avenue for the buying and selling of various cryptocurrencies. It kind of operates in a way of marketplace where crypto users can actually exchange their fiat currency USD, Euro for cryptocurrency like bitcoin, Ethereum and many more. It is kind of similar to traditional exchange and our traditional market place we are aware of.
Now when we talk about cryptocurrency exchanges, we should understand that it comes in two major forms which I will be discussing today. They are the centralized exchanges (CEX) and decentralized exchanges (DEX). Both of these forms have really been able to establish themselves over the long period of time in the crypto world and in fact over the years have witnessed a tremendous growth rate. So many questions at times that crypto users always ask is which one should I go for, should I actually go for the centralised exchange or for the Decentralised exchange? Well I will be comparing both in my post today and leave you to choose which one to go for.
Let's Talk About The Decentralised Exchange
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Alright let me start with the Decentralised exchange. What do we really mean by Decentralised exchange? What comes to your mind when you hear the word Decentralised exchange?
A Decentralised exchange (DEX) is actually this type of cryptocurrency exchange platform that actually work in a way whereby it does not have this central authority in the system. What do I mean by that, if you should compared the traditional exchanges that we are actually aware of have this centralised entities that they actually depend on to facilitate their transactions. But when it comes to DEXs, it does not work like that. Instead it helps to enable peer to peer trading directly between users.
DEX also works in a way whereby it helps to leverage smart contracts which are actually self-executing contracts also. One of the things that helps DEXs to stand out is the fact that they help to make priorities the privacy and security of users. Since it works in a way whereby transactions happens directly between users wallet, this also helps to reduce that risk of hacks and thefts actually and most of DEXs does not depend on the extensive KYC that most centralised exchange always focuses on.
Advantages Of Decentralised Exchange
Briefly let's look at some of the advantages that I belong Decentralised exchange possesses.
- Enhanced Security:
The first advantage that I have actually come to discover that Decentralised exchange helps us is the fact that it enhances security. It helps to reduce that risk of hacking and theft which is a common issue of centralised exchanges. Why it is possible is because users have the ability to have total control of their private keys and funds so it becomes hard for hackers to crack the system and hack the keys of innocent users.
- Censorship Resistance.
Like I said earlier, since they work on Decentralised platform, they work on Decentralised networks and so this makes them to be resistant to government intervention or control. This helps the users also not to be limited in financial services they should have access to.
- Lower Fees:
One of the advantages I have actually come to discover is the fact is the fact that DEXs have this lower fees compared to the popular centralised exchanges we all are aware of actually. Instead of spending cost to maintain all these centralised infrastructure and since there is nothing like that, it helps them to achieve cost saving which in turn results in low fees.
Disadvantages Of Decentralised Exchange.
Now that we have been able to actually establish the advantages of Decentralised exchange, let's look briefly also in the disadvantages of Decentralised exchange below.
- Liquidity Challenges.
Since most DEXs is not as big as centralised exchange, it has this issue of having low relative liquidity. This cost wider spreads and may cause price that will not be favourable for traders at the end of the day.
- Limited Asset Selection.
Now due to the fact that most Decentralised exchange have low liquidity compared to Centraliised exchange like I said, it makes them to have this limited assets selection. They have this limited selection of trading pairs and assets that is available for trading. This will create great limitations for traders.
- Limited Support and Customer Service.
The last disadvantage I will like to mention before rounding up is the fact that it creates this limited support and customer services. I strongly believe that in most cases centralised exchange provides this better customer support compared to the Decentralised exchange.
I will definitely like to stop here and in my next post, I will actually continue in the part 2. In the next edition, I will be talking extensively about centralised exchange. So stay tune also.
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Well indeed centralized exchange do have its own merits especially the fact they boost incredible liquidity which enables us trade easily but yet I will have to choose decentralized exchange despite the bad sides as it helps to ensure security, I love to know my funds are safe 🙂
Thank you so much for explaining this in well details manner