Probably anyone who starts to examine the crypto industry more closely will get into crypto trading sooner or later. Consequently, the question “what is the best place to trade BTC and other crypto?” arises. We are going to study the difference between centralized and decentralized cryptocurrency exchanges to find the most convenient place to trade crypto.
Centralized Cryptocurrency Exchange (CEX)
Examples: Binance, Coinbase, Kraken, Changelly, Bitcoin.com, ShapeShift, etc.
Centralized exchange or just a regular cryptocurrency exchange is one of the most popular places to trade major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Monero (XMR) and other altcoins. Millions of traders use centralized trading platforms daily. There are solid arguments that prove current CEXs’ superiority over decentralized exchanges.
1. Speed
When the market is volatile (like the crypto market), every second is priceless. In this case, an exchange has to have a top-notch trading engine that will execute trading orders in a fast and efficient manner.
2. Liquidity
Being one of the most important indicators of a good trading platform, liquidity enables the best crypto offers for all participants of the market. To do so, crypto trading exchanges provide market makers with favorable conditions. Such crypto exchanges as Binance, HitBTC, Kraken, Bitfinex offer high BTC and altcoins liquidity, making traders’ lives better in some terms.
3. Trading instruments
The cryptocurrency market is vast. Besides well-known assets like Bitcoin, Ethereum, and Ripple, there are over 3,000 cryptocurrencies out there ready to be traded. Giant crypto platforms enable access to hundreds of crypto markets, providing traders with wide crypto choices. In this regard, DEXs are limited with trading instruments that can be managed by a trader.
4. Trading tools
Since centralized exchanges have been on the market longer than DEXs, they managed to enhance their functionality to provide each user with a seamless trading experience. Multiple trading features and options like margin trading (trading with leverage), futures contracts, and many more can now be found on the crypto market. This provides users with more trading opportunities and allows them to make a profit with the help of various trading tools.
There is also a sub-type of centralized cryptocurrency exchanges that allow users to swap or buy cryptocurrency quickly. These are called instant cryptocurrency exchanges (Changelly, ShapeShift). In case a user wants to buy BTC within minutes, he/she can purchase it on an instant exchange and move it further according to preferences (digital wallet, full-features crypto exchange, etc.).
However, one should remember that a CEX acts like an intermediary between traders. Basically, it is a third-party that connects users in one platform. Most of the crypto exchanges are custodial, which means they store users’ funds on their servers. Obviously, they utilize advanced security mechanisms, yet they can be hacked. Decentralized exchanges, on the contrary, are too difficult to hack, which makes them more secure trading spots.
Decentralized Exchange (DEX)
Examples: Bisq, Uniswap, Bancor, Binance DEX
Decentralized exchanges are tailored to provide users with a fully blockchain-based trading experience. At its core, DEX is a decentralized application (dApp) built upon a particular blockchain (Ethereum, EOS, Binance Chain, etc.). Decentralized exchanges enable users with a pure peer-to-peer (p2p) interaction which means there will be no third-party interference into a trading process.
1. Security
DEXs are considered to be more secure since they operate via blockchain. Centralized exchanges keep users’ data on servers (that can be hacked). In the case of DEXs, each node is a server that stores information about transactions. It is well-known that blockchain is, theoretically, hacker-proof.
2. Lower commission fees
Since a DEX is a decentralized entity, no one owns a decentralized exchange. There is no need to pay a salary to a large group of people that maintain DEX’s proper work, whereas CEXs spend a fortune to pay support agents, developers, etc. In this case, decentralized exchanges charge lower commission fees.
3. Regulation
Decentralized exchanges can’t be regulated by any authorities. Blockchain is all about the lack of any centralized intervention. When trading on a DEX, be sure there will be no control from any governmental structures.
4. Privacy
There is no necessity to pass KYC on a DEX. As mentioned above, decentralized exchanges don’t store any information about their users.
Obviously, each cryptocurrency trading spot (be it CEX or DEX) has its own advantages and disadvantages. To find the cheapest bitcoin exchange or a perfect place to trade BTC and any other digital asset, a user has to decide which features of exchange are vital for him/her personally. We hope this article will provide you with indispensable information regarding decentralized and centralized exchanges so that you can make an informed decision. Before trusting any crypto exchange with your funds, don’t forget about the golden rule – doing your own research (DYOR).