DEX and СEX. Which exchange should you choose?
05.10.2022 | asorokin
All cryptocurrency exchanges are divided into two main types: centralized (CEX) and decentralized (DEX). Their main difference is the presence or absence of management of user data and assets by the exchange.
After the creation of bitcoin, CEX became the first way to trade cryptocurrency. They are developed by analogy with stock exchanges on the stock market and represent similar platforms adapted for cryptocurrency.
DEX is a new technology that has no alternatives in the securities market, since unlike the cryptocurrency market, it is centralized.
Centralized exchanges (СEX)
Such exchanges act as an intermediary between users. They take on the responsibilities of processing transactions and monitoring the movement of funds. The exchange is also responsible for ensuring the security of users’ data and assets.
When registering on a centralized exchange, users create an account to which a cryptocurrency wallet is attached. Since the account and wallet are linked, it is impossible to send funds from the wallet without logging into the exchange account. Such a wallet is called a custodial wallet. Both the exchange and the user have access to it, and all funds on it are under the control of the exchange.
Also, when creating an account, in order to get full access to the exchange’s functionality, it is necessary to pass KYC — verification of identity. Most often, a passport photo is required for confirmation. Users also provide the exchange with their phone number and email. If you lose your password, they will be used to restore access to your account.
Since CEX always requests confirmation of the identity of their clients, such exchanges do not assume any anonymity. Only users know nothing about each other. This feature has its own plus — users can prove the ownership of the account and funds in the wallet if they lose access to them.
For example, you have lost your SIM card and cannot recover it, you have also forgotten the password from your account and the linked mail. In this case, by contacting the exchange administration through support, access can be restored upon confirmation of your identity.
Centralized exchanges have many advantages in addition to the ability to restore access to the account.
Exchanges offer a wide range of options for investing and trading. They vary depending on the platform, but, as a rule, their number exceeds the capabilities of decentralized exchanges.
Trading tools and fast transactions
Centralized exchanges use detailed price charts, with which you can analyze the cryptocurrency exchange rate and build figures using special tools.
Users have different options for placing orders:
Since the exchange uses a centralized data processing system, and does not rely on a decentralized blockchain, transactions take place instantly, without delay.
CEX supports wallet replenishment in both cryptocurrencies and fiat and provides different options for crediting funds:
- via crypto wallets;
- from bank cards;
- through electronic payment systems.
High liquidity on centralized exchanges is maintained due to the large number of users. Transactions take place instantly, as there are a sufficient number of assets in the liquidity pools.
Disadvantages of CEX
In addition to the advantages, centralized exchanges have disadvantages, but not all of them can be unequivocally attributed to the disadvantages, it depends on what is important to the user.
The need for verification completely eliminates the anonymity of the user. This is a controversial drawback, since not everyone needs anonymity.
Lack of access to the private key
The user does not have access to the private key of his wallet, which is why he does not have full control over his funds. He cannot withdraw assets from the exchange without its consent and may lose access to them if the exchange administration decides so.
Working only with reliable and proven exchanges, you will not encounter blocking of your cryptocurrency, but this may happen due to carelessness. If you transfer coins to your wallet that were once associated with illegal activities, they may be blocked. Before blocking, you may not know that something is wrong with your cryptocurrency, but it will be too late.
Exposure to fraud
Due to centralization, CEX is susceptible to hacker attacks. Cases of hacking and theft of funds from centralized exchanges occur constantly. Some platforms compensate their users for losses, but this does not always happen.
There may also be an unexpected closure of the exchange. In this case, the exchange will take all the users’ money for itself.
The Cryptex exchange carefully ensures that our users do not encounter such problems. Safety, reliability and individual approach to each client are our priorities.
Decentralized Exchanges (DEX)
Decentralized exchanges are the exact opposite of centralized ones. They are anonymous, do not require the creation of an account and do not have access to user wallets.
The exchange does not act as an intermediary, it works as a place where users directly exchange funds. The process is built on the blockchain and all operations are implemented through smart contracts. There is no single center for collecting and processing information, everything is decentralized.
To use the functionality of a decentralized exchange, instead of creating an account, you need to connect a wallet that supports the network on which the exchange operates.
Using one per custodial wallet, you can work with multiple DEX. Users are not tied to a single platform.
Advantages of DEX
Users do not need to confirm their identity, as there is no actual registration on the exchange. The only information that is available is the public key. This anonymity protects against data theft by hackers and simplifies the process of connecting to the platform.
Protection against theft of funds by the exchange or fraudsters
The exchange does not control the user’s private key and does not have any access to funds on the wallet. This approach protects the theft of funds by both fraudsters and the exchange.
Availability of tokens without listing on CEX
Since listing on a centralized exchange is a rather complicated process for new cryptocurrencies, first of all, the launch takes place on a decentralized exchange. Thanks to this, more unique projects are presented on DEX.
Disadvantages of DEX
Complexity of use
Decentralized exchanges are often not so clear to beginners, unlike centralized ones. To connect to them, you need to be able to create a third-party wallet and choose a suitable network, and the use of tools is complicated by the rare presence of Russification.
There are fewer earning tools available on DEX than on CEX, and there is also no wide functionality for trading.
Due to the smaller number of users, DEX cannot provide the same liquidity as CEX.
Fiat currencies are not used to buy cryptocurrencies on a decentralized exchange.
Which exchange should you choose?
It cannot be said that centralized or decentralized exchanges are better. Each of the types has its advantages and disadvantages. When choosing, you need to start from the necessary functionality. One of the options to choose between exchanges is to use both.