Differences between centralized and decentralized exchange

There are so many exchange houses in the market that we do not know which one to choose, we always try to find the best option to have our cryptocurrencies as safe as possible, but we really do not know what benefits a centralized and decentralized exchange can bring us.

It is necessary to be registered and have an account in an exchange, in most you can register totally free, since they earn in the transactions that users make daily when they move the cryptocurrency towards a wallet or another exchange. Currently, two types of exchange can be found: centralized (CEX) and decentralized (DEX).

What are the centralized exchanges

Differences between centralized and decentralized exchange

Within this modality we find exchanges that are in the top 10 of the best exchange houses in the market, among them Bittrex, Poloniex, Bitfinex and Binance, these are the best known but there are many more. When it is said that it is centralized it means that there is an intermediary, in this case it is the platform, which intervenes in the cryptocurrency transaction that is to be carried out between two people.

These exchanges were growing as the cryptocurrencies did, it should be noted that they serve almost the same functions as any financial institution, as it is to store and safeguard your assets, but it is much more adapted to the crypto market.

One of the great disadvantages of centralized exchanges is that users do not own all the cryptocurrencies they are exchanging, since they do not own the private keys of the funds and all transaction data is stored in a centralized server.

An example was the case of the Mt.Gox exchange that handled 70% of bitcoin transactions, here thousands of people lost their money as 850,000 bitcoin disappeared in 2014 (200,000 of these bitcoins were found in 2017).

This type of risks are those that run the centralized exchange houses to have a centralized server and that users can not have control of their own cryptocurrencies.

What are the decentralized exchanges

The big difference is that this type of exchanges are not handled by any intermediary, your server is operated by software that works with blockchain technology. There are no intermediaries since transactions are made between pairs (p2p).

An example of exchange of this category are: OpenLedger, Ox, ShapeShift, EtherDelta, Waves, Changelly, Bitsqueare, among many others, in this type of exchanges the users can carry out their negotiations directly among themselves.

There are some exchanges that also offer the option of a wallet, as is the case with Waves, but customers can always control their passwords and all their money. They can even use their private wallets to make funds transfers.

One advantage is that government entities and regulations do not exist in this category, that is, they have a very high level of anonymity when making transactions.

Many regulators strongly criticize this type of exchange since they are used for money laundering, by not asking for any personal information for registration, some decentralized exchanges such as Bitsquare do not even need to register to start using it.

The DEX also do not get rid of cyber attacks, since your server is fully exposed on the internet. An example is EtherDelta, which in December of last year, exposed some user data, although it was solved very quickly by the Ethereum network.

This type of exchanges are limited to transactions with fiduciary currencies, but they have many options of tokens to exchange, many of them are ICOs, which is a big difference to the CEX since it is difficult for them to include a new cryptocurrency in their exchange since they have many restrictions.

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