To access crypto, it goes without saying that you’ll have to use some form of exchange. Though countless exchanges exist, there’s really only two kinds: centralized and decentralized.
CENTRALIZED EXCHANGE (CEX)
A centralized exchange is operated by a third party: the middle man. The exchange personnel conduct and oversee trades, assets, and personal accounts. When you buy, sell, swap or send money to somewhere else, the trade is managed by the exchange. This makes it very easy to send money from a bank account and convert your fiat into cryptocurrency. Keep in mind, though you may have bought cryptocurrencies, the exchange technically owns them in your name. You simply have an account which is directly linked to your stash (you can still send your crypto to people or to a decentralized wallet).
DECENTRALIZED EXCHANGE (DEX)
Differentiating from a CEX, a decentralized exchange is not operated by a third party. These DEX’s are built on smart contacts that automate peer-to-peer trades through the blockchain. On a DEX, you have a unique wallet address where all your orders are executed from. Think of it as a private safe that only you can touch. You are the only person with access to this, and thus have full control and ownership of all your coins.
THE PROS
User experience and ease of access are simplified on a CEX, making general procedures swift with no real attention to details required. If you forget your password on a CEX, you should be able to contact the exchange and reset your password. CEX’s serve as a great introduction to the world of crypto without overwhelming the newcomer.
Decentralized exchanges are commonly seen as riskier or for more experienced users: requiring a better understanding of their systems as they are 100% user-reliant. However, they also offer more upside potential. For one example, DEX’s are theoretically capable of listing any cryptocurrency. This gives users the chance to buy or stake lower-cap coins before they become mainstream. A DEX security is far safer too. They utilize blockchain security and privacy technology to create a trustless system that protects your wallet.
THE CONS
Centralized exchanges don’t offer every coin, due to security protocols, required trading activity, legal compliance, and various technological differences. You’re limited to the listed cryptocurrencies only. CEX’s are also prone to large-scale hacks, and while your holdings should be returned if they’re stolen, this isn’t a guarantee.
A DEX requires the individual to be slightly more experienced and responsible for their own assets. Thoroughly checking you input all details correctly when carrying out any kind of transaction is a must. Always double check the details. A simple error such as mistyping a wallet address or seed phrase could mean you lose your coins without any way of rectifying your mistake. DEX’s are generally slower, a problem caused by scalability issues which innovative projects such as ZK Sync are aiming to solve.
JUST AN FYI…
It’s wise to use exchanges with high volume. This allows the supply on the exchange to remain steady. High supply = high exchange capacity, lowering the risk of volatility. This allows you to buy or sell at a far more optimal price and better avoid Slippage. Here’s a short list of the top exchanges:
Centralized –
• Binance
• FTX
• Coinbase
• KuCoin
• Crypto.com Exchange
Decentralized –
• PancakeSwap
• dYdX
• Uniswap
• Curve Finance
• ApolloX DEX