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What is the difference between a decentralized exchange and a centralized one?


Sardar
(@cryptoguy)
Eminent Member
Joined: 5 months ago
Posts: 20
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What is the difference between a decentralized exchange and a centralized one?

A crypto exchange is a platform where you can buy or sell crypto tokens like Bitcoin or Ethereum. Most crypto exchanges also allow you to stake your crypto to earn passive income in interest, trade futures, and also transfer digital assets through your wallet.

 

There are two kinds of crypto exchanges: centralized (CEX) and decentralized (DEX). Although both are used for the primary purpose of buying and selling crypto, there are some key differences between a centralized and centralized exchange.

Centralized Exchange

Centralized exchanges enable users to buy crypto with fiat, and are the ones that have a central authority or intermediary that manages the exchange. The central authority has the right to add or remove any cryptocurrency on its exchange. CEXs charge fees to their users for each buy or sell order they make on the exchange, and there is also a withdrawal fee when a user moves their digital assets from the exchange. On a CEX, each user is issued a wallet address for different crypto tokens, however, in reality, the central authority has the ownership of their users’ wallets as they keep their private keys to themselves. Among the top centralized exchanges are Binance, Coinbase, LocalBitcoins, and Kraken.

 

Decentralized Exchange

Decentralized exchanges are similar to a centralized exchange, but they cut out the middle man completely. This means users are able to trade crypto in a peer-to-peer network without a central authority. DEXs work entirely on smart contracts and atomic swaps. Moreover, users have full ownership of their assets as they are given their private keys to their wallets. However, this can be risky too. Forgetting your private key means you lose access to your assets forever. Moreover, DEXs allow anyone to issue their own tokens, as there is no central authority to govern what tokens should be available on the exchange.


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