There are two types of cryptocurrency exchanges: centralized (CEX) and decentralized exchanges (DEX). Each has its strengths, weaknesses, and unique structure, but they all provide you with access to trade and swap digital assets.
Centralized exchanges are the most common means that crypto investors use since they provide a wide range of functionality, tools, and cryptocurrencies. This type of platform is also more intuitive and user-friendly in terms of the trading interface.
Centralized exchanges (CEXs) have been around since the inception of Bitcoin and other altcoins. They function essentially the same way as traditional exchanges that match buyers and sellers via an order book.
A decentralized cryptocurrency exchange, or DEX, is similar to a centralized one, except it is completely anonymous and bypasses intermediaries. With a Dex, you don’t have a third party, transactions are made directly between participants, and all of your assets remain stored on the blockchain.
This guide explores the pros and cons, features, and differences of each exchange type. We hope this helps any investor or novice trader know what risks he needs to be aware of and conclude which one will be more convenient and safer.
Centralized exchange pros
High liquidity
Thanks to their popularity, centralized exchanges typically host huge trading volumes, which creates a highly liquid ecosystem. This makes it easy to execute your trades quickly because numerous buyers and sellers guarantee to exchange your assets seamlessly at any time.
However, the liquidity of an individual cryptocurrency can vary depending on factors such as its market capitalization. Usually, major cryptocurrencies, such as Bitcoin and ether, will be extremely liquid.
One way to evaluate the level of liquidity in a particular exchange is to observe the spread — the difference between buy and sell prices — as the liquidity on a platform increases, the spread usually tightens.
Multiple tradeable pairs
Centralized exchanges are typically considered fully-fledged platforms that allow users access to a vast array of digital assets and trading pairs. Most notably, their offering includes fiat to crypto pairs that are rarely available on decentralized exchanges.
In addition, CEXs provide a lot more features other than exchanging one cryptocurrency for another. The list includes derivatives trading, margin trading (leverage), and tokens staking and lending.
Ease of use
A centralized exchanges’ simple structure offers a user-friendly trading interface. Most CEXs function the same way as traditional brokerage platforms, which is why they are so popular among investors and recommended to beginners.
Some CEX platforms offer lite versions for newbies unfamiliar with crypto pairs and for advanced traders looking to make basic trades only.
Centralized exchange cons
Privacy
Centralized exchanges often apply strict know-you-client (KYC) policies to verify customers’ identity, risk profiles, professional background, etc. KYC compliance typically involves requirements such as uploading scanned versions of your address and identity documents before being allowed to trade or make withdrawals. As such, a CEX is not the go-to exchange if you want to maintain your anonymity while trading cryptocurrencies.
Less control of your money
Trading on centralized exchanges requires you to use their custodial wallets, which gives them authority over your assets. This creates a security risk for traders when hackers target CEXs to access their central database. If they succeed, intruders can extract users’ private keys and withdraw their funds.
Lower security
There are many security flaws, hacks, and scams that have plagued centralized exchanges over the years. And unfortunately, there have already been a few high-profile incidents that saw crypto exchanges losing billions of dollars. The custody of client funds is a huge risk to exchanges as they become prime targets for cybercriminals.
Decentralized exchange pros
Privacy and anonymity
Using a decentralized exchange doesn’t involve any type of KYC requirement or authentication procedure. It only requires you to connect your own wallet and sign a transaction, so your identity will remain anonymous.
DEXs are also free from any type of government scrutiny or regulation by any public authority. So, no identity verification process is required, which reduces the risk of leaking private user data.
Greater security
Decentralized exchanges operate without a central intermediary as they merely facilitate peer-to-peer trading. Therefore, DEXs are generally more secure than centralized exchanges.
Using a decentralized exchange allows you to retain full custody of your crypto assets, making them a smaller target for hackers and reducing theft attempts.
Lower fees
As outlined above, working without an intermediary allows traders to make peer-to-peer transactions. This gives crypto traders more control over their assets and makes transaction fees on a DEX significantly lower than on a CEX.
Decentralized exchange Cons
Limited trading
DEXs still lag behind CEX trading volume. Most investors trade on centralized exchanges as the concept of DEXs is relatively new, and they are also limited in functionality. As of writing, decentralized exchanges only make up 25% of all crypto trading volume.
Difficult to use
Trading on a DEX is more complicated than centralized exchanges, as other nodes must validate each transaction. Furthermore, decentralized exchanges typically lack sophisticated trading tools and charts. Most traders are interested in using these tools to make their decisions, let alone newbies when navigating DEX complicated technicalities.
Combining the best of both worlds
Considering the shortcomings and limitations of CEXs and DEXs, exchange aggregators like Zenfuse have stepped in with attention to the above pillars of service quality.
Zenfuse combines the best aspects of these exchanges to bring you a smooth and sophisticated crypto trading desk to solve this age-old feud. The all-in-one solution offers one-stop access to the top crypto platforms and allows you to trade across multiple platforms on a single interface.
Zenfuse is also immune from unplanned downtime, which is one of the worst situations for any crypto trader when he can’t access his trades in real-time. Zenfuse’s infrastructure uses redundant zones of availability to maintain trading flow, even during peak activity or other kinds of emergencies.
About Zenfuse
Zenfuse is a powerful all-in-one platform for cryptocurrency traders and investors.
It aggregates multiple cryptocurrency exchanges, allowing control of funds via API, and powers up the trading process, making trading more profitable, simple, and stress-free.
Our cross-platform app provides rich analytics of both your portfolio and order history, giving you the ability to control your funds on a mobile device.
