18 days ago

Difference Between CEX and DEX in Crypto

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The world of digital currencies is developing rapidly. It is impossible to imagine it without exchange platforms, where thousands of transactions are carried out daily.

 

Trading on the stock bourse can bring good income. But to trade successfully and earn money from it, clarify some basic nuances first. For example, what is the difference between CEX and DEX? Which platform is better for a beginner, and which exchange should an advanced trader choose? 

 

The answers to these and other questions are discovered further down the text.

 

Centralized Exchanges (CEX): Definition, Functionality, Examples

 

The centralized crypto exchange is an online platform for trading cryptocurrencies. It has a centralized management body — as a rule, it is the company that created it.

 

Initially, CEX was anonymous, but today users have to confirm their identity to trade.

 

Centralized bourses offer a wide range of orders: 

  • Limit orders;

  • Stop losses;

  • Stop-limit orders;

  • Margin trading;

  • Leverage trading.

Most of these platforms store most of their assets in cold storage for security purposes. Funds stored in so-called “hot” wallets are more susceptible to theft. 

 

That is why it is recommended to withdraw funds immediately after completing the trade.

 

To start working on such an exchange, you need to register. To do this, you need to create an account, confirm your identity, and deposit a certain amount. Once this process is completed, you will be able to start trading. 

 

The principle of operation on the exchange is as follows: when you want to buy cryptocurrency, you send a purchase order. If you want to sell cryptocurrency, then place a sell order. Given orders are saved in a special log. If someone wants to sell the same amount that you are buying, the system will match your orders and the transaction will take place if approved.

 

The trader pays a commission for each transaction. Given fees are the main source of income for CEX platforms.

 

CEX Pros and Cons

 

Centralized bourses have the following advantages:

  • Comfort in use. It is simple and clear to work on the platform — an elementary set of services, navigation, and a personal account.

  • A wide range of products and services. Users can change tokens, choose different offers (apply for a loan or engage in cloud mining).

  • Availability of fiat transactions. At the initial stage, if you do not have crypto tokens, you can buy them with fiat funds. 

  • High liquidity. The balance of supply and demand on such platforms is maintained at the proper level. Even a beginner here will quickly find the right asset, price, or volume.

  • Support Service. You can ask a question around the clock in a chat or by email if you have any problems.

What about its cons?

  • Hacker attacks. Insufficient security is the harsh reality of such platforms. Scammers manage to hack the exchange and steal user funds.

  • High commissions. Here, you will have to pay when replenishing your balance and withdrawing money from your account, as well as for each type of trading operation.

  • The risk of losing access to assets in the account. If you keep funds in the exchange's wallet, there is a risk of losing everything. In case of force majeure, you can stay with zero on the balance sheet.

  • Verification requirements and low confidentiality. By law, to verify the bourse, you need to send photos of documents, selfies, and other personal data. If necessary, tax or law enforcement agencies can find out about the operations being carried out.

Decentralized Exchanges (DEX): Definition, Functionality, Examples

 

And now, after having discovered what CEX is, let's figure out what DEX is. It is a decentralized exchange created on the blockchain and dominated by P2P transactions.

 

On this platform, cryptocurrency users can trade directly with each other without intermediaries. Transactions on these bourses are managed using software codes known as smart contracts that run on the blockchain.

 

To understand the interface and functions of DEX, you need deep knowledge about the crypto industry, blockchain, and DeFi. It will be difficult for a beginner to avoid mistakes, and there are simply no assistants in the form of a support operator on such platforms.

 

DEX Pros and Cons

 

Decentralized crypto bourses offer several unique advantages:

  • Anonymity. These platforms allow trade without censorship and the need for user identification (KYC). 

  • Availability. Regulators in many countries impose restrictions on the use of crypto exchanges. When choosing between cex vs dex crypto remember that decentralized platforms are available anywhere and to any user.

  • Security of personal funds. Users' funds are stored in their wallets and not transferred to other companies or third parties. Thus, DEX users have full control over their assets.

  • Passive income. The smart contracts manage credit pools, allowing users to invest their assets and earn income. 

  • Cost-effectiveness. If comparing centralized and decentralized crypto exchanges, DEX do without intermediaries and allow direct transactions between participants, transaction fees are usually lower than on centralized platforms.

Among the disadvantages, it is worth highlighting these:

  • It comes with a more complex process of working with wallets. 

  • Protocol smart contracts are periodically hacked, so such exchanges are not 100% secure.

  • There is no support for transactions with fiat funds. You can only exchange cryptocurrency on the bourse. 

  • There is no way to trade cryptocurrencies of different blockchains (for example, to sell Bitcoin for USDT).

  • Liquidity problems. Mainly, DEX offers smaller trading volumes and less liquidity than common CEX.

  • There is no technical support. You can only find thematic forums on the Internet where people can help each other with advice.

Crucial Differences Between CEX and DEX

 

Well, what is the difference between cex and dex? If you look at CEX and DEX, the main differences can be defined as follows:

  • Control and Custody:

CEX: Exchange holds the private keys. The user transfers control of funds to CEX and cannot withdraw money at any time.

 

DEX: Users retain control of their private keys and keep an eye on their funds until the transaction is completed and are free to move and store them.

  • Security:

CEX: Vulnerable to hacks and attacks. Thus, user funds stored on the exchange can be stolen.

 

DEX: More secure, less prone to centralized attacks. The decentralized nature eliminates the risk of human error and interference; besides, hackers have nothing to attack except the DEX hosting protocol or individual users' wallets.

  • Privacy:

CEX: Requires personal information and KYC. Due to the increased requirements for identity verification, the user ceases to be anonymous.

 

DEX: More privacy, less stringent KYC. DEX provides secure storage of funds and does not require you to provide any personal information, thereby reducing the risk of identity theft by intruders.

  • Liquidity:

CEX: Generally higher liquidity that allows one to make large transactions.

 

DEX: Lower liquidity compared to CEX. It is the main reason for the problem with the execution of large orders.

  • User Experience:

CEX: User-friendly interface and great trading functionality. It is more intuitive and easy for beginners.

 

DEX: Requires some technical knowledge. Difficulties arise at the beginning of using the exchange, as you first need to study all its functionality.

  • Fees on centralized and decentralized crypto exchanges:

CEX: Often higher transaction fees. Due to the high commission fees, CEX is unlikely to compete with the more profitable DEX.

 

DEX: Generally lower fees, but network fees apply.

 

cex vs dex

 

An Overview of CEX Examples 

 

So, what do we have for today? Let's look at a couple of examples of centralized bourses:

  • Binance: the largest cryptocurrency exchange. It ranks first in terms of trading volumes.

  • Huobi: it ranks second in terms of trading volume after Binance.  

  • KuCoin: Another centralized exchange — similar to Huobi and Binance. The trading volume is slightly lower than theirs.

These platforms are in great demand among beginners, high-volume traders, and those needing customer support.

 

An Overview of DEX Examples 

 

As a rule, decentralized exchanges have lower daily trading volumes. They are also not suitable for beginners, as they require knowledge about cryptocurrencies. For example, to connect to a decentralized exchange, the user must first set up a wallet and transfer coins there.

 

So, who should choose DEX? Always remember what is the difference between centralized and decentralized cryptocurrency before making a decision. 

 

Decentralized bourses are suitable for users who need increased privacy and total control over their assets. In general, given platforms are usually chosen by advanced users with trading experience.

 

Examples of decentralized exchanges: 

  • Uniswap on the Ethereum blockchain. 

  • PancakeSwap on the Binance blockchain (Bep-20).

  • Raydium on the Solana blockchain.

Conclusion

 

The cryptocurrency market, unlike the traditional stock market, has a lot of differences, starting with the principle of operation of digital assets and ending with the organization of working. Before making a decision one should get the difference between cex and dex.

 

A crucial criterion when choosing between DEX and CEX is whether investors prefer to store crypto assets on their own or trust them to the exchange. CEX usually requires users to deposit funds before trading begins. Self-storage allows you to control your funds.

 

However, without proper precautions, the keys may be lost or destroyed. It may cause the irretrievable loss of their associated assets.

 

In a word, there is no clear answer to the question “Which exchange to choose — cex vs dex crypto?” So, depending on particular tasks, the crypto investor may constantly move between different trading platforms.

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