In 2009 when the first blockchain-based cryptocurrency, Bitcoin was introduced, it came at a time when financial institutions were going through a crunch.

At the time, not many people believed that cryptocurrency could be profitable, however, the few who invested in it at the early stage got more than their money’s worth, and that paved the way for the creation of several cryptocurrencies.

With more cryptocurrencies, came the need for people to be able to trade cryptocurrencies with each other, and thus, cryptocurrency exchanges came to being.

A cryptocurrency exchange functions like a stock exchange where instead of stock trades, cryptocurrencies are traded. It is basically a platform that facilitates the trading of cryptocurrency assets based on the market prices at the time of the trade.

There are three types of cryptocurrency exchanges:

Centralized Exchanges (CEX)
Decentralized Exchanges (DEX)
Hybrids (CEX + DEX)

Comparison

Centralized Exchange

This is the very first type of exchange that was available when the need to trade cryptocurrencies came up. The operations of the exchange are centralized, and that means activities are overseen, or governed by a central authority.

Customers are not usually in total control of their assets. The exchanges can be in either cryptocurrency to cryptocurrency, or fiat to cryptocurrency tender.

Pros

Trade volumes are higher
Presence of high liquidity
Enhanced functionality
Availability of fiat to crypto trades

Cons

High susceptibility to hacks, phishing, and fraud
It is subject to a central authority
Customers are not in full control of their assets
It is regulated by the government and can be shut down at any moment

Decentralized Exchanges

You may want to refer to decentralized exchanges as the opposite of the centralized exchanges, and you would be right if you did. Decentralized exchanges do not function under a central authority, or depend on a service to control customers’ assets, but with the aid of the underlying blockchain technology, are able to automate functions in a very secure manner.

Hence, customers are in full control of their assets. A lot of the decentralized exchanges available are based on Ethereum’s blockchain, and this helps the implementation and facilitation of smart contracts on the exchanges

Pros

The presence of distributed nodes as part of its security feature makes it almost impossible to hack.
Because it is not centralized, government regulations do not apply, and as such cannot be shut down by the government.
Customers are in full control of their assets.

Cons

Trade volumes are lower
Liquidity is lower
No fiat to crypto trades
The functionality of the exchange is limited.

There are several exchanges in the crypto market, and Rubix is a blockchain based social exchange that deals with the irregularities facing other cryptocurrency exchanges. It is imperative to know just how secure an exchange is before using it, in order to avoid losing your crypto assets.

The post Comparison of Centralized vs. Decentralized Crypto Exchanges appeared first on CryptScout.com – Cryptocurrency News, Prices & Research.



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