All about Centralized and Decentralized crypto exchanges

by in Crypto 101

Types of crypto exchanges

Crypto exchanges: everything you necessitate to know

Crypto exchanges are online platforms that facilitate users to swap one type of digital asset to another. These platforms are operating just like regular real-life exchanges: the contrast is just in currencies you can trade.

These platforms allow users to exchange one cryptocurrency to another, swap cryptocurrency with fiat money, or vice versa. An example of a platform that lets its users make exchanges with fiat currencies is Kraken. Currently, it accepts payment in USD, JPY, CAD, and GBP and supports transactions with Monero, Ripple, and Litecoin, as well as with Bitcoin and Ethereum. Exchanges can accept credit card payments, bank transfers, or other systems of payment.

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Many of them are registered out of European countries and the US. The reason for this is simple: most of these countries are trying to make strict regulations affecting cryptocurrencies, exchanges, and other related platforms. Currently, all these regulative initiatives are remaining uncertain, but the majority of platforms prefer to have secure registration and work without fear.

Varieties of cryptocurrency exchanges

Cryptocurrency exchanges can be three types:

Centralized exchanges (CEX);

Decentralized exchanges (DEX);

Hybrid;

Centralized exchanges are also known as traditional exchanges. These platforms are governed by a central organization or a company that offers crypto trades from crypto-to-crypto or fiat-to-crypto.

Popular centralized exchanges

Decentralized exchanges are alternatives to regular ones. These exchanges don’t depend on any controlling institution. All the transactions and trades are managed by an automated process without any central governing object. These sorts of deals are identified as customer-to-customer or peer-to-peer (P2P). DEXes use blockchain to build a decentralized platform, which will perform secure transactions of crypto coins without any central institution. The platform works as a service that connects two users: the one who needs some cryptos and the one, who can give those cryptos for other coins or fiat. The majority of decentralized exchanges use Ethereum’s blockchains and smart contracts.

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Popular decentralized exchanges

As you can conclude from the name, hybrid cryptocurrency exchanges are the ones that combine features of both DEX and CEX. Hybrid exchanges took from CEX its quick transaction speeds and low latency. And from DEX, they took smart contracts, that are ensuring there’s no third-party controlling figure in the process of a transaction.

Difference between DEX and CEX

Of course, all types of exchanges have their advantages and disadvantages. And here, we are going to talk about them and find out the differences between the two kinds of exchanges.

The first advantage of centralized exchange is that it has higher trading volumes than decentralized ones.

One more thing is that CEX offers high liquidity.

Decentralized exchanges are more protected from hacks because of their base technology and distributed nodes. CEX is a much more vulnerable option.

Using CEX will allow you to swap fiat-to-crypto, decentralized exchanges provide only crypto-to-crypto trades.

DEXes are not managed by the government - that’s why it can not shut down the platform. In the case of CEXes, that’s not working.

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Centralized exchanges are more functional than decentralized ones.

And, of course, the last one which is evident is that CEXes are centrally governed, and decentralized ones aren't.

That was everything about types of exchanges and their specifications. It's essential to define the pros and cons of a platform you are going to trade on, in order not to lose your money.