CEX vs. DEX: What Is the Difference Between These Types of Exchange?

CEX vs DEX: What is the Difference?

Which trading platform does a killer job? Choosing the right space is really one of the main questions for beginners. Understanding two main types is the key. So, crypto marketplaces can be divided into Centralized and Decentralized Exchanges — CEX and DEX, respectively. Each type has unique features and working principles, as well as pros and cons. This review digs deeper into the CEX vs DEX comparison to sort out the details.

Centralized Exchange: an Overview

The main point of CEX is that a specific company controls its activities and transactions. Platforms like Binance, Kraken, Kucoin, Coinbase, or FTX appeared in 2010, following the launch of Bitcoin and becoming intermediaries in trades and trustees in your money’s protection. Some are subject to a single regulator, while others feature fragmented management. Generally, we can say that a human factor is at the core of CEX.

Decentralized Exchange: an Overview

Before comparing a Decentralized exchange vs Centralized exchange, it’s necessary to get an idea of DEX. What's the point? It comes to peer-to-peer platforms for direct trading between participants without a mediator. Instead of physical companies or individuals, self-executing smart contracts called blockchains serve all processes. For example, 1inch, Uniswap, dYdx, SushiSwap, and PancakeSwap link sellers and buyers without authorities’ oversight. Thus, any side of a transaction can access its crypto funds using a private key rather than the custodian’s supervision.

Advantages and Disadvantage of Centralized Exchange

The CEX vs DEX crypto exchanges is a hard choice since each side has its strengths and weaknesses. Let’s start with Centralized platforms that supervise buying and selling fiat and cryptocurrencies. So, they are in charge of security, fair pricing, regulatory enforcement, and access to digital assets.

Advantages of Centralized Exchange

Actually, CEX is extremely popular, resulting in 95% of digital asset trades executed last September. Why do CEXs deserve attention?

  • Strict identity verification.
  • Offline funds’ storage.
  • Multi-signature wallets.
  • Several ways to buy crypto.
  • Many options for investment (futures, airdrops, staking, leverages, launchpads, etc.).
  • Extra custody services for investors to manage their bargains and consult novices.
  • Fair prices are based on objective supply and demand. They are not speculative and hence more predictable. So, you have better chances to trade successfully, especially with the lack of experience.

Besides, CEX facilitates regular people’s engagement in complicated multicurrency projects and concepts. Considering many institutions and large businesses involved in activities on CEX platforms, they feature high liquidity, speed of transactions, and massive trading volumes. In addition, centralized control reduces risks. Moreover, reputable managing corporations regulated by the government guarantee their clients’ full protection from dealing with sham companies.

Disadvantage of Centralized Exchange

So, do you vote for CEX or DEX? Well, consider some pitfalls before answering.

Interestingly, human management means that your privacy is sensitive because you entrust third parties your funds and transaction with your private keys. Besides, whopping volumes of assets attract hackers and many centralized exchanges have been repeatedly attacked.

In addition, you should check your provider’s background. Unfortunately, some  dishonest platforms may resort to price manipulation, insider trading, and other tricks.

Besides, some other cons also should be considered. The first problem is fewer coin options and the risk of bankruptcy. Overwhelming fees and commissions are other deal breakers.

Advantages and Disadvantage of Decentralized Exchange

Decentralized exchanges have differences. For example, some market makers are completely automated. In contrast, others use off-chain and on-chain order books similar to Centralized services. Besides, you can find DEX aggregators that comprise several decentralized platforms on the same site. Still, they have their benefits and flaws.

Advantages of Decentralized Exchange

How can you benefit from DEX, and what do you risk? Let’s start with advantages:

  • Transaction participants keep their digital funds in their wallets and can instantly access them via a private key without submitting personal information to the platform. 100% anonymity!
  • Minimal or no fees.
  • DEX is not vulnerable to cyber-attacks.
  • No risk that your mediator defaults.

High token availability is one of the greatest advantages of DEX since it opens the way to newly created projects not listed on centralized platforms. Thus, you can trade a variety of cryptocurrencies with plenty of tokens.

Disadvantage of Decentralized Exchange

In the DEX vs CEX fight, DEX seems to lead since they grow fast, attracting more traders each day. Still, some drawbacks should be listed:

  • Limited trading options with some restrictions for implementation.
  • Prices may differ from the actual market trends.
  • Specific knowledge or experiences are crucial to success.
  • Some smart contracts’ bugs can escape audits’ notice.

Besides, many newly minted coins are not vetted, making it difficult to understand their real liquidity.

Conclusion

While summing up the DEX CEX review, it should be said that several factors matter when deciding which one is the most efficient.

  • First, you should decide on assets to trade and options to invest. Are they available on CEX? If not, you will definitely find them on DEX.
  • Is anonymity above all? If yes, DEX beats competitors, keeping your activities completely private.
  • Then your current experience is crucial. If you have an expertise in crypto trading and don’t need custodians, DEX is a suitable marketplace. Still, CEX works better for novices who feel it challenging to sort through interfaces, buying or selling processes, etc.

Hence, reviewing priorities and weighing pros and cons is the best way. It helps you avoid mistakes and confusion. Besides, it would be great to use two different platforms simultaneously to mitigate risks. Don’t forget to monitor the market since most relevant options today might turn into outsiders tomorrow.

FAQ

Are you ready to make your final choice? The details below will come in handy. They help you complete the picture and trade or invest to maximum advantage.

Is CEX better than DEX?

Both have their advantages. So, the choice is a matter of personal priorities, goals, and tastes. Of course, you should opt for DEX if more coins, full anonymity, and strong protection from crashes are your list of demands. At the same time, CEX fits those looking for user-friendly interfaces, diverse investment options, and objectively set prices.

Can I rely on DEX safety?

DEX is absolutely safe by its nature. Besides, its quality doesn’t depend on management, its reputation and credibility. In this way, only users are responsible for security since it depends on their projects’ quality.

Which is the primary benefit of Decentralized exchanges over Centralized ones?

There are many debates and discussions about the best marketplace in this comparison. Still, decentralized platforms are apparent leaders when it comes to privacy. That’s why they are a preferable option for those with a sharpened focus on anonymity.


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