A Complete Beginner’s Guide to Centralized (CEX) & Decentralized (DEX) Exchanges

Exchanges are the center of the crypto economy; billions of dollars in digital assets are bought, traded, and sold every day.

By Wendy’s Whitepaper Contributor: Dragonwolftech

User Level: Beginner

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Exchanges are the center of the crypto economy; billions of dollars in digital assets are bought, traded, and sold every day. In this article, we’re going to look at the differences between a centralized and decentralized exchange.

Simply put, a centralized exchange is one where currencies are held in custody in the servers of the host exchange. Also, centralized exchanges have a similar structure as traditional financial exchanges: Corporate body, addresses, spokespersons, and may offer insurance, etc.

Decentralized exchanges are peer-to-peer with no central custody, corporate body, or insurance. Whether you want to use a centralized or decentralized exchange depends on the type of crypto you are trying to trade in, how comfortable you are with custodial services, if you prefer a more peer-to-peer experience and if you are new to the crypto economy. 

Let’s look at some of these exchanges and the top centralized and decentralized exchanges with the highest volume (24h), according to CoinMarketCap.com.

Note: This data is current when this article was written; check CoinMarketCap.com through the links provided for the current 24h volume. Check with each exchange to see if the exchange operates in your area.

Top Centralized Exchanges

  1. Binance ($60.7 billion)

  2. Houbi Global ($26.5 billion)

  3. Coinbase/Pro ($7.3 billion)

  4. Kraken ($4.5 billion)

  5. Bitfinex ($3.9 billion)

Top Decentralized Exchanges

  1. MDEX ($1.9 billion)

  2. Uniswap ($1.5 billion)

  3. PancakeSwap ($1.1 billion)

  4. Sushiswap ($672 million)

  5. BurgerSwap ($471 million)

Know Your Customer (KYC)

Users who want to use a centralized exchange will generally need to provide an email address to start, followed by a form of know your customer (KYC) verification. The amount of information required will vary depending on the exchange in question. KYC typically includes submitting a photo ID or passport and a physical address. 

Decentralized exchanges have grown in popularity due to not having to provide KYC verification to get started and access a broader range of digital assets that may not be available on more centralized exchanges.

Pros & Cons

Every exchange, whether centralized or decentralized, has its drawbacks. Centralized may offer better customer service, help with transactions, insurance (in some countries), and perks. Users send their crypto to a centralized hot (connected to the internet) wallet, the exchange controls that are tasty targets for hackers. The other issue is with KYC. Some exchanges ask for a considerable amount of information on their users to be KYC compliant. Where this information is stored and who it is shared with should be of great importance to users. 

On the other hand, decentralized exchanges offer a peer-to-peer experience, and some would argue better security because the coins being exchanged are not sent to a third party. At the same time, a decentralized exchange may have a steeper learning curve depending on the exchange. Because DEXs are peer-to-peer, exchanges may take longer than with a centralized exchange that already has the digital assets in hand. 

Which exchange type you decide to use will depend on many factors; before using any exchange, research the exchange. See what other customer experience has been and what is required to begin using the exchange; this way, you can make an informed decision about exchanging your crypto assets.

Wendy’s Whitepaper Disclaimer: Please be advised that I own a diverse portfolio of cryptocurrency assets, and anything is written or discussed in connection to cryptocurrencies– regardless of the subject matter’s content– may represent a potential conflict of interest. I wish to remain transparent and impartial to the cryptocurrency community at all times, and therefore, the content of my media is intended FOR GENERAL INFORMATION PURPOSES ONLY. Nothing that I write or discuss should be construed, or relied upon, as an investment, financial, legal, regulatory, accounting, tax, or similar advice. Nothing should be interpreted as a solicitation to invest in any cryptocurrency, and nothing herein should be construed as a recommendation to engage in any investment strategy or transaction. Please be advised that is in your own best interests to consult with investment, legal, tax, or similar professionals regarding any specific situations and any prospective transaction decisions.