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👾 Centralised and Decentralised exchanges… what's the difference?

Here's what Moni team discovered:

To date, there are over 400 cryptocurrency exchanges on the market. These exchanges can be classified into two types: centralized and decentralized.

CEX (Centralized Exchange) is a centralized cryptocurrency exchange, as simple as that. As the name suggests, the management and administration of such an exchange lies on the shoulders of one organization, which acts as an intermediary between the two parties.
CEX Examples: Coinbase, Kraken, Binance, FTX, etc.

How CEX work?
Example:
Let’s say you want to buy an Ethereum coin.
You can go to the exchange, register, go through KYC (proof of identity), provide bank details and deposit fiat money. Then you make an operation and buy Ethereum. In your personal account, you will see Ethereum you bought. If you want, you can exchange it for other tokens. But you don’t actually own Ethereum and all the assets available on the exchange, because the exchange acts as a vault on your behalf. Any operation that you do on the exchange, for example, the swap of Ethereum for Bitcoin, does not take place on the blockchain, but in the exchange’s database. Of course, you do not have private keys to your wallets.

DEX (Decentralized Exchange) is a decentralized cryptocurrency exchange. Such an exchange was created on blockchain technology (distributed ledger)
DEX examples: Uniswap, Pancakeswap, SushiSwap, etc.

How DEX work? Example:
The decentralized exchange uses smart contracts to trade between people. Such exchanges do not have an intermediary (third party concerned). They function as peer-to-peer exchanges. Assets are never held (now we are talking only about an exchange), and transactions (this is not only the purchase itself, but also a request to buy or cancel an order, etc.) are made on the basis of smart contracts and are recorded in the blockchain.

Advantages and disadvantages of CEX and DEX:
*Note: For some guys pros are cons. And vice versa.

CEX
Pros:
– The ability to make transactions with fiat
– Great functionality for trading
– High liquidity
Cons:
– No access to private keys
– Verification
– Security risk (CEX are more vulnerable to hacking threats)

DEX
Pros:
– Anonymity
– Only the owner has access to assets and private keys
– Access to a large selection of coins for exchange
– You will not be blocked
Cons:
– More often liquidity is lower than on CEX
– Fiat is not supported

Let me know what you think about that
Aaaand if you want more live type of content about crypto you can always find me and Max in twitter:
https://twitter.com/garrigabrel 🧙‍♂️
https://twitter.com/bolotovma 🥷

  1. 2

    Thanks for a nice post.
    Are you sure that it is not possible to make a decentralized exchange supporting fiat?

    1. 2

      I'm sure that it's possible to have a fiat on ramp :) But it's not popular at the moment. And it's one more connection with traditional centralised party and many decentralised platforms trying to avoid that – name it DeFi ethics.

  2. 1

    I would add some CEX allows you to cheaply anonymize your coins. For example you create anonymous account at Bitfinex, transfer some crypto there and transfer it back for a very small fee (comparing to Tornado.cash). You can also add another CEX to the combination, split one transaction into many smaller ones and use random time intervals between transactions to make it more diffcult to connect source and destination addresses.

  3. 1

    Thanks for the explanation! Are you using CEX, DEX or both?

    1. 1

      We are using actually both :)

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