There are two types of crypto exchanges: Centralized vs Decentralized Crypto Exchange. Before discussing the difference between the two. Let’s ensure we understand what a crypto exchange is. A crypto exchange is where one can buy and sell crypto assets. Every exchange has a set of rules and regulations that the users abide by.
What is a centralized crypto exchange?
A centralized crypto exchange uses a third party to monitor the activity of transactions instead of the user. This exchange requires users to verify their info before starting any activity. This exchange is also open for the use of an organization that must provide corporate information.
Users on a centralized crypto exchange are provided with a higher withdrawal quota and customer support in any case of technical difficulties or errors. A centralized exchange is relatively easy to use, and because of the flat rates offered on the exchange, it has become a popular option for crypto investors.
What is a decentralized crypto exchange?
The difference between a Centralized vs Decentralized Crypto Exchange is the third party involved. In a decentralized exchange, there is no third-party or central authority intervention. Instead of the transactions and funds being monitored by a third party, they are stored on the blockchain. These exchanges, which involve the usage of an escrow mechanism or proxy tokens, also allow peer-to-peer trading (P2P). This differs from the centralized crypto exchanges’ IOU approach.
The Differences
Now that we know what each cryptocurrency exchange offers, let’s dive into the differences between a Centralized vs Decentralized Crypto Exchange
Security
Centralized exchanges are known for their high-security procedures. While decentralized exchanges have more protection. There have been several instances of centralized exchanges with hackers. Therefore security is their number one priority. On a decentralized exchange, hackers are not a cause for concern.
The Features Offered
Centralized crypto exchanges offer a wider variety of features compared to decentralized exchanges. Some of the features include spot trading, margin trading, and portfolio-managed tools.
Popularity
Centralized exchanges have a right hand over decentralized, as they were introduced first. They offer better liquidity and a more stable and efficient system. Although they started with more popularity, decentralized exchanges can impact their popularity in the future.
Speed
As we mentioned before, centralized exchanges offer a more stable service. Along with stability, it also works in a faster manner. Studies have shown that a Centralized exchange takes ten milliseconds to complete orders. While decentralized exchanges need an average of 15 seconds.
Liquidity
The liquidity available on centralized crypto exchanges is greater. Market makers are active on these exchanges, adding to the platform’s liquidity. Because order matching takes longer on decentralized exchanges, they have minimal liquidity. Another factor for low liquidity is a lack of popularity.
Regulations
Centralized exchanges are regulated; in addition, they require a license to operate. In comparison, decentralized exchanges are harder to control. The reason for this is due to the highly distributed blockchain.
Control
The control on centralized exchanges is built into the platform. Whereas on a decentralized exchange, the users control.
Fees
Centralized exchanges require a transaction fee, and decentralized exchanges require none.
Conclusion
Investing and crypto trading both require you to use your hard-earned money. Before doing so, it is essential to understand the differences in which exchange you’ll be working with. Of course, this is your preference, and each trader knows what works best for them and their situation. We hope that by now, you clearly understand Centralized vs Decentralized Crypto Exchange and what they offer.
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