CEX vs DEX
Before we begin our crypto journey, there are several things we should be aware of, one of which is crypto exchange. It is the success and widespread adoption of cryptocurrencies that can be attributed to crypto exchanges. There are now two types of cryptocurrency exchanges: CEX (centralized exchanges) and DEX (decentralized exchanges) (decentralized exchanges). Both are fundamentally different and have their own set of advantages and disadvantages. The approach used by these two exchange platforms distinguishes them.
CEX is an abbreviation for Commercial Exchange (Centralized Exchanges) Centralized Exchanges is a cryptocurrency trading platform that serves as a meeting place for people to exchange cryptocurrency. CEX is a centralized organization company that acts as a third party to store assets, regulate exchanges, and charge exchange fees.
The exchange process at CEX took place through an order book. It determines the price of a particular cryptocurrency based on current buy and sell orders.
This type of cryptocurrency exchange is currently the most popular in the world, and it is typically used by crypto newcomers because CEX is a user-friendly platform that makes purchasing and managing digital currencies extremely simple. CEX companies include Binance, Bitmax, Bitfinex, CEX.io, Kraken, and OKEx.
CEX has the following advantages:
Liquidity and trading volume are at an all-time high. Because CEX is well-known and used by a large number of active users who buy and sell their assets, it has a higher trading volume than DEX. High trading volume has an effect on liquidity as well. The ability of an asset to be converted into cash or other cryptocurrencies is referred to as liquidity. Liquidity is important for a variety of reasons, including the fact that it makes a cryptocurrency exchange less vulnerable to market manipulation.
Trading in fiat currency versus cryptocurrency and vice versa Centralized exchanges support fiat to crypto on and off-ramps, making it easier for people to begin their crypto journey by simply exchanging their fiat money for cryptocurrency.
High level of usability CEX is more than just a cryptocurrency trading platform; it also offers margin trading, crypto derivatives trading, exchange staking, and margin lending.
Simple to use Even for crypto newcomers, CEX’s user interfaces are simple to grasp, and the processes and procedures can be quickly internalized. CEX also provides simple and straightforward access to the respective trading options.
Transaction was completed quickly. CEXs can process every transaction quickly and almost in real-time, allowing traders to react directly without waiting for the market to change. This occurred as a result of CEX being handled by a centralized organization company capable of processing thousands of orders per second.
In comparison to DEX, the CEX mechanism is trust-based, as CEX stores their users’ crypto assets and has integrated wallets that are part of their system (custodial services). This mechanism is uncontrollable by the user. As a result, users must have complete faith in exchanges that their money is secure. Because of this, CEX is a prime target for cybercriminals.
According to government regulations Because centralized exchanges are governed by regulators, third-party providers, and legal requirements. As a result, in order to prevent money laundering exchanges, operators must collect extensive data on their customers (KYC). This consistency runs counter to the fundamental concept of cryptocurrencies.
Decentralized Exchanges
DEX (Distributed Exchanges) ** DEX is the next step in CEX’s evolution. The system is not governed by a centralized entity; rather, every trade or transaction on DEX is governed by an automated procedure run by a smart contract. When compared to CEX, the availability of smart contacts speeds up and reduces transaction costs.
Unlike CEX, which uses the custodial framework, DEX uses the non-custodial framework, which means that every user has full control of their private keys when transacting through DEX. This mechanism provides users with a true sense of ownership of their assets because they have full control over their digital assets. Dex (TRON), Newdex (EOS and TRON), Switcheo Network (Ethereum, NEO, and EOS), Uniswap, Sushiswap, Compound, and Curve Finance are examples of DEX.
Even before the rise in popularity of Decentralized Finance (DeFi) products, DEX had gained traction due to the rush of the decentralized exchange Uniswap, which highlighted the advantages and disadvantages of DEX and CEX. As a result, crypto enthusiasts believe that the market share of DEX will grow in the future.
According to Coinbase data, there will be $217 billion in transactions flowing through decentralized exchanges in the first quarter of 2021. There were more than two million DeFi traders in April 2021, a tenfold increase from May 2020.
DEX has the following advantages:
High security against hacking DEXs are more secure than CEXs due to two factors. First, DEXs operate on a non-custodial framework, which gives users complete control over their assets, preventing hackers from accessing user wallets unless they expose them themselves. Hackers primarily targeted the central exchange database in order to obtain users’ private keys and withdraw their funds. Second, because no identity verification process is required, there is no risk of private user data being leaked.
Fee is low. Because a large number of trading pairs pass through the DEXs network, the trading fee at DEXs is low.
There has been no third-party fraud. Because there are no centralized organizations or third parties acting as financial regulators or authorities monitoring or imposing regulations on the exchange as a decentralized application, there will be no fraud.
Integration of DeFi and NFT DEXs employ a smart contract that grants users access to the world of smart contracts, as well as DApps that provide financial services such as lending and savings products, as well as NFT projects.
Make a variety of tokens available. Anyone can create a liquidity pool for an Ethereum-based token. As a result of this activity, DEXs now offer a wide range of tokens.
The government cannot close it. DEXs are free of government requirements, regulations, or monitoring in the absence of third parties, including the government, and cannot be closed by the government.
In comparison to CEX, there is a lack of liquidity. DEX is still a new concept, and there are fewer traders than on CEX, so DEX liquidity is lower. Nonetheless, as DeFi has grown in popularity, so has asset liquidity on the DEX.
Functionality is limited. DEX’s graphical user interfaces are still overly complicated, especially for newcomers. Many traders do not have access to functions such as limit orders, margin trades, or stop losses. Nonetheless, most DEX attempts to adapt the functionalities known from CEX, so that DEX will be more user-friendly in the future.
Both CEXs and DEXs have benefits and drawbacks. Because of active users who buy and sell their assets, CEXs have significant trading volume and liquidity; they also allow users to trade from fiat to crypto and vice versa; and they have a high level of functionality, user-friendliness, and a quick transaction procedure. CEXs, on the other hand, are vulnerable to hacking because they are managed by a central body. This is in direct opposition to the fundamental concept of cryptocurrencies. Meanwhile, DEXs are less vulnerable to third-party hacking and fraud because there is no centralized body overseeing them, they have low fees, and they are linked to two blockchain frontiers, DeFi and NFT. Furthermore, DEXs provide a diverse range of tokens. Crypto investors can choose the best one for them.
