- What is a centralized and decentralized exchange?
- Centralized crypto exchange Vs Decentralized crypto exchange
- Compliance and Centralized crypto exchange
In order to trade cryptocurrencies, every user requires a cryptocurrency exchange. But did you know there are two types of cryptocurrency exchanges one being a centralized crypto exchange while the other is a decentralized cryptocurrency exchange?
But before we deep dive into what a centralized and decentralized crypto exchange is let us first understand what is a cryptocurrency exchange? A cryptocurrency exchange is nothing but a place where one can buy and sell cryptocurrencies, Just like CoinDCX. Every crypto currency exchange has its own rules and regulations to be followed with the sole aim to provide its users access to cryptocurrencies.
These crypto exchanges are then categorized into two categories:
What is a Centralized cryptocurrency exchange
A platform where you can buy and sell digital assets such as cryptocurrency. In these types of exchanges, a third party is used to monitor and secure the transactions on behalf of the user. The blockchain system does not track these deals.
The centralized cryptocurrency exchanges require their users to verify their personal information before using the tools provided by them. If the user is an organization, then it must provide some corporate information for the process of verification.
The verified users on these exchanges get to enjoy a higher withdrawal quota along with other customer support in case of any technical error. The centralized cryptocurrency exchanges are quite popular among crypto enthusiasts since they offer flat pairs at stable prices. These are easy to use and follow all the compliance for a secured and easy crypto journey of their users. Some of the most famous centralized cryptocurrency exchanges are Binance, Coinbase, etc. CoinDCX, India’s simplest and safest cryptocurrency exchange is also a centralized exchange.
What is a Decentralized Cryptocurrency Exchange
A decentralized crypto exchange (DEX) is very similar to a centralized crypto exchange but without third-party intervention, These exchanges do not rely on any third party, The funds in the exchange are stored on the blockchain. Peer-to-peer trading (P2P) is also allowed by these exchanges that require the use of an escrow system or proxy tokens. This is different from the IOU system used by centralized cryptocurrency exchanges. AirSwap and Barterdex are examples of decentralized cryptocurrency exchanges.
Centralized Exchange Vs Decentralized cryptocurrency exchange
|Basis of Difference||Centralized Crypto Exchange||Decentralized Crypto Exchange|
|Security||Must have very strict security measures to avoid hackers||No chance of hacking or any other security danger|
|Popularity||Very popular||Not yet popular|
|Features||Has a lot of features to offer||Decentralized exchanges do not have many features to offer|
|Liquidity||Centralized exchanges have high liquidity||Liquidity is low|
|Speed||Orders are executed in less than a second.||Orders take longer to be executed|
|Regulation||Centralized exchanges are regulated and follow compliance. They require a license from the authorities.||DEXs are not that easy to regulate and they do not require any license from regulatory bodies.|
|Control||The control lies in the hand of the platform.||Users hold control of this exchange|
|Fees||Most of the centralized crypto exchanges charge fees for carrying out the transactions.||There is minimal to no fee in the case of decentralized exchanges.|
Although centralized exchanges have very strict security procedures decentralized crypto exchanges offer more protection. Centralized exchanges are mostly threatened by hackers.
The past experiences of hacking with centralized exchanges have led to many security upgrades by them. In the case of a decentralized exchange, there is no risk involved with losing one’s fund due to such acts.
Decentralized exchanges are more secure than their centralized counterparts since there is no possibility of multiple losses of funds due to a single cause.
Undoubtedly centralized crypto exchanges are more popular than DEXs because they were the ones to enter the market first. centralized exchanges have more liquidity and better infrastructure to follow.
However, with time more decentralized crypto exchanges are entering the market which will definitely have a considerable impact on their popularity.
When it comes to features centralized cryptocurrency exchanges definitely have an upper hand over the decentralized crypto exchanges. Centralized exchanges provide features such as margin trading, spot trading, portfolio management tools, and many more.
DEXs do not offer margin trading and also have their hands tied when it comes to types of orders.
The centralized crypto exchanges have more liquidity to offer. These exchanges have users who make a particular order after getting influenced by the market trends. Therefore, multiple users buy an asset that is quite in demand and also sells accordingly. These exchanges also have market makers that further enhances the liquidity of the platform.
Decentralized exchanges have low liquidity because the order matching in these exchanges takes time. Lack of popularity is yet another reason for low liquidity.
Centralized crypto exchanges are faster than Decentralized crypto exchanges. According to reports, the centralized crypto exchange takes an average of 10 milliseconds for the completion of orders while DEX requires a minimum of 15 seconds to match and execute the order.
Centralized crypto exchanges are easy to regulate as compared to decentralized exchanges. Centralized exchanges are regulated, need licenses to operate, and are compliant with the regulatory authorities.
Decentralized exchanges on the other hand are complicated to regulate. These DEXs are difficult to regulate due to the highly distributed blockchain. Therefore, even during a ban Decentralized exchange can operate in those regions.
The control in the case of centralized exchanges lies with the platform. In the case of Decentralized crypto exchange, users are the ones to control the platform. This is one of the most significant reasons behind the popularity of decentralized exchanges.
The users of centralized crypto exchanges have to pay a certain amount of transaction fees to the exchange for using their services. DEX requires no such transaction fees.
Centralized Exchanges and Compliance
Due to the lack of regulations around cryptocurrency and its facilitators, there is a huge debate around the compliancy of these exchanges, However, most of the centralized exchanges are compliant and abide by the regulations stated by the local regulatory bodies. When it comes to CoinDCX, as one of the leading centralized crypto exchanges in India, compliance is the key. To ensure a seamless user experience, a compliant environment is a must for CoinDCX.
Measures such as maintaining the KYC database as well as the use of software such as Onfido ensure that the trades are absolutely free of loopholes. Read how compliance motivates innovation in CoinDCX. We also ensure that our users enjoy the best of the crypto world. Therefore, a part of the data is used to analyze the features our users want from us. An adequate amount of time and effort is put in by the security team at the organization to ensure that all the data of the users are safe and secured. CoinDCX also comes up with regular blogs to ensure that users are aware of how and what to do to protect their data from infringement.
Read about the 14 security tips to protect your data from hackers.
Summing it Up!
Before investing the hard-earned money it is important to understand the type of exchange we are using for our cryptocurrency investments. Choice of cryptocurrency exchange depends upon the personal preference of the crypto user. While a lot of users prefer centralized crypto exchanges due to their popularity, speed and features there are a few crypto enthusiasts who go for decentralized crypto exchanges due to their security and zero transaction fees. Depending upon the features one wants to use, the choice of exchange must be made.
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