A cryptocurrency exchange is required to trade cryptocurrencies. We will go over two categories of cryptocurrency exchange in this post and compare them.
Centralized Cryptocurrency Exchange
A centralized cryptocurrency exchange is a platform for buying and selling digital assets. It makes use of a middleman or third party to facilitate transactions. The buyers and sellers trust their assets to this middleman to monitor the transaction and secures the assets on behalf of the buyer and seller. Transactions are not recorded on the blockchain.
Such transactions necessitate the submission of personal information for verification. If it is a company, corporate details must be presented to the exchange in order for it to validate your account.
The more information you supply to these exchanges, the larger your withdrawal quota will be. Verified users of these platforms can contact the exchange's support team in the event of a technical fault or if they forget their password.
Cryptocurrencies are frequently housed in digital wallets, a person can lose hundreds or thousands of dollars in digital currency holdings just by forgetting the wallet's key. An exchange will prevent this from happening because it protects the individual investor's holdings.
Coinbase, Binance, Gemini, GDAX, and others are some examples of centralized cryptocurrency exchanges. These brokers are custodians, preserving and safeguarding your money. The exchange is operated by a company that owns it in a centralized manner.
Decentralized Cryptocurrency Exchange
Decentralized exchanges are a non-centralized option that eliminates the middleman. These are peer-to-peer exchanges. All assets and funds in this transaction are kept on the blockchain. They are never stored by an escrow provider, and transactions are purely based on smart contracts and atomic swaps and trades.
Decentralized exchanges either run on an AMM (Automated market maker) or traditional order book model
In the order book model:
- An order is placed by a token owner to swap his or her assets for another asset offered on DEX. The owner of the token determines the number of units they must sell, the token's price, and the time limit for accepting bids for the assets.
- Other users can offer bids by putting a purchase order after the selling order has been made.
- Once the sellers have chosen the time, both sides evaluate and execute all of the offers.
In the AMM Model:
- Liquidity for an asset and its swap pair are pooled in a smart contract. Those who pool funds are eligible to receive the fees generated from the swaps using this pool.
- When someone makes a swap in the pool, the balance of assets in the pool is automatically rebalanced to 50/50 value, and the price of the tokens changes to reflect the new supply.
- When there is not enough liquidity in a pool, and a large swap is made, the trader will run into high slippage issues; meaning the lack of liquidity will result in an above-market purchase price.
The advantage of the DEX is that if is completely private and anonymous. It allows two people to directly trade value without having the need to transfer assets to a third party. The fees are low and are redistributed to liquidity provider and not to a centralized authority.
A disadvantage of decentralized exchanges is that fiat currency is not accepted. Liquidity can be thin making it harder to make large orders. Also, there is a risk of impermanent loss for liquidity providers.
A decentralized cryptocurrency is significant because it enables a trustless value exchange system. This is achieved by eliminating the need for a third party to validate the value transfer. This eliminates the need for a middleman and allows two people to directly trade value. It also increases system security because there is no single point of failure. Similarly, because no single body controls the currency, a more democratic system is possible. But then when someone loses money, there is no one to turn to! And because cryptocurrencies are digital rather than physical, they are also prone to cybercrime and hacking.
Centralized Exchange Vs Decentralized Exchange
Source
The crucial difference between centralized and decentralized exchanges is whether or not a middle man is present.
Another difference between DEXs and CEXs is whether users prefer to hold their own crypto or entrust it to the exchange. Before trading, most CEXs require users to place assets in their custody.
Holding your assets oneself adheres to the self-reliance concept that pervades the crypto sector. You have complete and total power over them. Private keys can be lost or destroyed if not handled properly.
Since I am more concerned with generating money today or tomorrow rather than what will happen in ten to fifteen years, a centralized exchange is more user-friendly and potentially safer.
The decentralized exchange is certainly a game-changing invention that will most certainly become the industry standard in the future.
In terms of short-term benefits, CEXs offer a safe entry into the world of crypto trading, while DEXs are a riskier with higher returns if you play the game well.
I think that you should do both CEX and DEX!
And keep in mind the saying: never invest money that you cannot afford to lose.
References:
https://www.coindesk.com/learn/centralized-exchange-cex-vs-decentralized-exchange-dex-whats-the-difference/
https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/
https://www.emizentech.com/blog/cryptocurrency-exchange-app-features.html#
https://www.zenledger.io/blog/decentralized-exchange-vs-centralized-exchange
https://www.upgrad.com/blog/centralized-vs-decentralized-cryptocurrency/
https://finematics.com/impermanent-loss-explained/
https://ecency.com/post/@leoglossary/leoglossary-c
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I am not a financial adviser. This article is not meant to be financial advice. My articles on cryptos, precious metals, and money share my personal opinion, experiences, and general information on cryptos, precious metals, and money.Thank you for stopping by to view this article.
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Thanks @poshthreads
I can't hold, I had to reblog immediately I read this. This is too much in just one post. I have gotten a perfect understanding of CEX and DEX through this post.
Thanks for sharing.
Hehehe, 1000 words is the minimum it takes to explain this stuff!!!
!invest_voteYou're very welcome @infynytymining !
@silversaver888 denkt du hast ein Vote durch @investinthefutur verdient!@silversaver888 thinks you have earned a vote of @investinthefutur !
The real issue with decentralized exchanges is that their gateways to fiat if available could be cutoff by ther providers
Indeed!'
!invest_vote Thank you for your comment, @bitcoinman !
@silversaver888 denkt du hast ein Vote durch @investinthefutur verdient!@silversaver888 thinks you have earned a vote of @investinthefutur !
Things look a bit grim for me with Binance now planning to leave their Canadian customers in the dust. Centralized as it may be but I've had no complaints for their liquidity and exchange features. I hope things could be ironed out before the deadline. Until then, I'm looking for another exchange or I may just simply lock them up ofline.
Always, with love 🤗🌺❤️
" If you don't hold it, You don't Own It " @kerrislravenhill
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I have my cryptos on Coinbase and have for years. I am glad they are fighting back! I just don't know if they'll get far with it!
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.It looks like our country is determined to completely ban all crypto and all exchanges !😳Let’s hope, centralize exchanges stand the test of time and survive in the United States @silversaver888. Kudos to COINBASE for standing up to the SEC!😊
Yes, I have my cryptos on Coinbase and have for years. I am glad they are fighting back! I just don't know if they'll get far with it! We'll see!
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It looks like the EU will have “Crypto” rules, a “playbook” if you will……..
At least they are open to Crypto!😇It is strange times in Crypto @silversaver888 !🤔
I hope you are doing well @silversaver888, I couldn’t find your post today!😲
I was just ... slacking??? I finally posted after I gained momentum... at 12 PM, hahaha. I'm glad @elizabethbit sent me an email. Otherwise, I could have spiraled down into nothing!
😳🤣😊
What would I do without @elizabethbit!🥰 I might spiral down as well @silversaver888!😇
It is a shame what the government is trying to do to the exchanges. Coinbase is fighting back, but even they have made noises about relocating outside the US.
Thanks for sharing sis! Much love to you!🤗😘💗🌸 !LADY
I hope they'll win!!! I have my cryptos on Coinbase and have for years. I am glad they are fighting back!
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OMG, Ms. Saver @silversaver888I Like it when you have a Big Post
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and yes the prices are even higher now than this menu shows............
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He was resisting a rest.
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@silversaver888, I sent you an on behalf of @stokjockeyGreat post! I love all my decentralized stuff but it can be difficult without something central to make your assets more liquid. Hopefully the SEC won't manage to end them all...
I have my cryptos on Coinbase and have for years. I am glad they are fighting back!
!LOLIndeed, @thebighigg !
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Coinbase is great although I tend not to keep much parked there, always have that lingering doubt in the back of my mind that they'll crash along with all my crypto! Maybe you can hel me out, how do you get the silvergoldstacker badge?
I'm sure you'll get your badge soon! Members of #silvergoldstackers community recently just got badges.
Thanks!
Remember.. If you don't own your keys... They do :)
Yes, indeed!
Hahaha!
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I know the post is not about this but I was always surprised by how many silver coins you have and would be really interesting to see pictures with your collection. I apologize if this post have already been posted 🥰
It is starting to look ridiculous! Nah, I was just kidding!
How have you been? It is quite busy here, at work and all.
I take at least an hour or two in my day to make comments and posts.
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Sorry but I'm a bit confused now. Anyway, it's been a great weekend. Not much to do since I dedicate my whole time to the 2months old cat we adopted but hope you have a lovely week ahead!
And yep, I used to be the same for a long while but as life passes, we realize how much daily routines change. Though I miss those moments and I hope I'll be able to get back there soon 😉