The value of digital currency exchanges in this big market is clear to everyone.
They have different types which are divided into centralized, decentralized and hybrid digital currency exchange.
Although more than 90% of the statistics of digital currency exchanges are related to centralized exchanges, the traders of decentralized exchanges have grown tenfold in the last year.
In this article, you will get to know what a cryptocurrency exchange is, centralized and decentralized exchange and you will know their differences.
let’s dive in and explore together:
- What is a digital currency exchange?
- What is a centralized exchange? (CEX)
- What is a decentralized exchange? (DEX)
- What is the difference between centralized exchange (CEX) and decentralized exchange (DEX)?
What is a digital currency exchange?
In a simple definition, a cryptocurrency exchange is a place to exchange or trade digital assets.
These exchanges operate on the web platform. Transferring assets to different wallets, the possibility of trading fiat currencies such as Euro, high security in protecting assets, diversity of cryptocurrencies, etc. are some of their features.
As mentioned, there are different types of cryptocurrency exchange, including centralized exchange, decentralized exchange and hybrid exchange.
What is a centralized exchange? (CEX)
CEX or Centralized Digital Currency Online Exchange are very popular due to their reliability. Users can easily invest and manage their assets in CEX.
This model of exchanges has the same function as traditional stock exchange.
The main features of these CEX exchanges are high reliability, real-time price and chart, the possibility of using fiat currencies (such as dollars, euros, etc.), support for currency pairs (for example, buying Bitcoin based on Ethereum), buying and selling cryptographically with high security and etc.
It is worth noting that these exchanges usually set percentage fees for their transactions, which causes them to waste a lot of capital for users in larger transactions.
CEX is a suitable choice for people who have just started buying digital currency and have less experience.
What is a decentralized exchange? (DEX)
Although the DEX cryptocurrency exchange has become more popular in the past few years, it still has a much lower trading volume than the CEX exchange.
This exchange has been developed to facilitate peer-to-peer (peer-to-peer) transactions. The buyer and the seller gather together on the online platform and do transactions, and there is no intermediary in between.
One of the positive features of buying and selling digital currency in this exchange is high security.
Of course, these exchanges have less volume of transactions and liquidity due to their less popularity.
Usually, DEX exchanges use fixed and small fees, which makes more profit in buying and selling transactions.
What is the difference between centralized exchange (CEX) and decentralized exchange (DEX)?
Above, centralized and decentralized digital currency exchanges were examined independently.
In simple terms, the difference between a centralized exchange and a decentralized exchange can be pointed to the low fee of a decentralized digital currency exchange compared to another and the frequency of transactions of a centralized exchange.
In the following, some of the main distinguishing features of these exchanges will be examined:
Property right
In both CEX and DEX exchanges, the assets are owned by the users themselves.
The difference between the two is the time of digital currency trading. In the DEX exchange, users’ assets are kept by themselves in all stages and there is no need to transfer them to others.
CEX exchanges take custody of users’ assets during transactions to prevent any problems during the transaction process.
Transaction speed
As mentioned, centralized digital currency exchange transactions are done by an intermediary, which, although this issue can cause more time loss, the speed of finalizing transactions will be much higher.
Decentralized exchanges are self-governing, which is why it takes more time to confirm transactions.
Liquidity
The volume of liquidity in decentralized exchanges is lower. The reason for this issue is that people are less receptive to doing transactions in this way.
Centralized exchanges for purchasing digital currency have fewer problems in this regard.
Of course, in the last year, with the increase in the use of DEX systems, this problem has been solved to a great extent.
Security
Security is much higher in decentralized digital currency exchanges.
The function of these exchanges is similar to blockchain, which greatly reduces the possibility of hacking. Centralized exchanges keep the information of people’s assets with them.
By doing this, hacking the exchange means stealing users’ information and causing them harm.
Of course, security issues are provided by using updated coding, improving the level of security, providing property insurance for people, etc. to a very favorable extent.
Transaction fees
Centralized exchanges always have higher fees than DEXs. Usually, the CEX fee for buying digital currency is calculated as a percentage.
On the other hand, decentralized exchanges have a fixed fee that they deduct from users for each transaction. The amount of these fees is usually very small compared to CEX’s percentage calculation for large transactions.
Regulatory rules
In centralized exchanges, due to having specific management, it is possible to apply the opinions of governments or the constitution of a particular country, as well as the laws determined by individuals.
Of course, there is also a monitoring system in the decentralized DEX exchange, which is mostly placed in the form of a smart contract in their blockchain network.
In this article, we got acquainted with the digital currency exchange, learned the methods of buying digital currency, and learned how its management systems work.
We have fully examined the difference between CEX and DEX currency exchange in order to provide the ability to choose the best option for buying and selling digital currency.
In general, centralized exchanges are more abundant. The possibility of fraud in their transactions is much less.
Due to the management of a particular person, in some cases the exercise of the power of governments will be evident in their laws.
On the other hand, decentralized exchanges are more secure due to the use of blockchain. They have a lower volume of transactions and it is more difficult for governments to enforce their laws.