Benefits of Centralized vs Decentralized Exchanges
16 April 2022 - 7:17PM
NEWSBTC
Buying or selling cryptocurrencies usually starts with exchanges
or, in other words, digital marketplaces where most crypto trading
happens. For example, Binance, a leading centralized exchange
(CEX), handles over $24.27 billion in daily volumes. Similarly,
UniSwap is the world’s largest decentralized exchange (DEX) with
over $7.25 billion in Total Value Locked (TVL). While centralized
exchanges now hold market dominance, decentralized exchanges are
providing strong competition with rising volumes. And, although
both CEXs and DEXs facilitate crypto-transactions, they differ
greatly in terms of security, cost, and transparency. In fact, both
CEXs and DEXs have their own set of advantages that make them
unique, as discussed in this article. Centralized Exchanges CEXs
often go against the spirit of blockchain technology, but th+ey
also offer a few major advantages, including the following:
Liquidity Centralized exchanges keep enough assets on hand to allow
quick deposits and withdrawals. Thus, anyone wanting to exchange,
say, their BTC for USD, is able to do so instantly on a CEX.
Liquidity is in fact a CEX’s trump card, which is why they invest a
lot into supplying consumers with high-speed transactions with
minimal slippage. Blockfinex, for example, offers a highly secure
and robust exchange with deep liquidity for more than 500 crypto
assets. Regulation Most CEXs seek operating permissions in several
countries, demonstrating their stability and competence to
financial regulators. They also follow investor protection measures
and issue risk alerts to clients regarding the non-reversible
nature of transactions. This builds trust among consumers, allowing
them to use the platform with confidence. Easy-to-Use CEXs usually
offer user-friendly interfaces, which makes trading crypto very
simple at any time. They also allow users to set trades in seconds
since custody and orders are all centralized, making them a go-to
place for big trades. Blockfinex is one such exchange that offers
an easy-to-use interface for trading crypto. The platform allows
traders to buy/sell with huge volumes without slippage and in just
a few clicks. Decentralized Exchanges Operating DEXs is like
turning on the advanced settings in an app. They work in an
open-source, trustless, and permissionless manner, providing users
full transparency over their funds. And, they also bring some of
the best benefits to the table including: Privacy DEXs do not
usually seek sensitive information while onboarding. In other
words, DEXs do not implement procedures like KYC
(Know-Your-Customer). Everything from wallets to transactions is
anonymous, which ensures utmost privacy. Self-Custody of Assets The
rule of thumb in DeFi is this—not your keys, not your crypto. DEXs
adhere to this principle and are non-custodial, enabling users to
exercise self-custody. In simple terms, DEX users retain control
over their private keys, and thereby enjoy genuine ownership of
their assets. Lower Transaction Fees Decentralized Exchanges
eliminate the need for involving middlemen, resulting in cheaper
transactions overall. Most DEXs currently run on Ethereum which
leads to high gas fees at times. However, blockchains are rapidly
innovating solutions to ensure negligible fees for end-users. For
example, a transaction worth $100,000 costs only a few dollars on
Polygon Network. What to Choose? It is entirely up to the user to
choose which exchange to use according to their needs and demands.
CEXs are ideal for those who are primarily seeking convenience and
are not comfortable with self-custody. And, platforms like
Blockfinex are the best bet that provide maximum convenience when
trading crypto. However, DEXs may be the way to go if you are all
for privacy and ownership of your funds. On that note, both CEXs
and DEXs have their share of benefits and it would be naive to call
one better than the other. They fulfill different purposes and are
thus relevant to users under different circumstances. And together,
they facilitate the broader blockchain-cryptocurrency domain,
boosting adoption in the process.
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