Are CEXs Beating DEXs in the Crypto Exchange Battle?

To centralize or not; that is the question. Often, we don’t even realize when we’re dealing with a centralized solution in everyday life. Take social media platforms such as Facebook; yep, you are using a centralized system. Another popular centralized online platform? YouTube.

So, what does it mean for you as the beneficiary of such centralized systems and technologies?

Centralization simply means that a central authority is in custody of the data which we as customers choose to share, and the management of the services which we desire. Of course, we do so willingly, expecting a fair exchange between our consent and access to the services and functions which are of value to us.

A centralized cryptocurrency exchange (CEX) is a digital currency trading platform that is controlled, maintained and governed by a central entity which acts as an intermediary between cryptocurrency buyers and sellers.

One Central Advantage: Ease of Use

Centralized exchanges by definition have one single advantage over de-centralized ones - ease of use. This is because the makers and the custodians of the centralized infrastructure have the difficult job of making their platforms attractive to users, which means that the pressure is on to make them highly intuitive in a drive to simplify the user journey and enhance the overall crypto trading experience.

A closer look at centralized exchanges reveals that CEXs provide better usability and charge lower transaction fees than decentralized crypto exchanges, or DEXs in short. Though DEXs provide     better anonymity and privacy protection and are free of governmental regulation, it can be argued that these aren’t quite the necessary features for many crypto market participants.

Centralized Cryptocurrency Exchange: Advantages Over DEXs

- User-Centered Experience: Centralized exchanges are often easier to use and navigate than decentralized exchanges. They tend to have more intuitive interfaces that are designed with even beginner traders in mind.

- Customer Support: Centralized exchanges usually have customer support teams that can help users with any issues they encounter. This can be especially important for new users who may need assistance with the trading process.

- Boosted Security: Centralized exchanges often have more robust security measures in place than decentralized ones. They typically store user funds in cold storage which is offline, and therefore less susceptible to hacking attempts. They also use whitelisting and transaction confirmations, in addition to encrypted personal data – all to keep clients’ assets safe.

- High Liquidity and Volume: Given that centralized exchanges are remain to be the more popular crypto trading platform option, they consistently enjoy high liquidity and trading volume.

- Speed: Fast transaction speeds on centralized exchanges contribute to better user experiences as well as enable complex trade types, like spot trading, futures trading and margin trading.

- Fiat Currency Support: Centralized platforms allow users to trade cryptocurrencies for fiat currencies such as the USD or EUR.

In general, DEXs are slower, and require a more experienced user to use them. Trades can take several seconds to settle because they are processed on-chain.

Furthermore, in order for users to trade cryptocurrency pairs on decentralized exchanges, they must obtain crypto elsewhere, and this presents more time constraints on the desired smooth trading experience.

On the funding side, CEXs triumph DEXs as well as decentralized exchanges typically do not provide the option to fund the wallet via credit card deposits, although some wallets are integrated with payment processors, allowing credit card purchases.

On the other hand, users retain custody of their assets when trading on a DEX, as compared to centralized exchanges which incorporate operations to manage client funds.

How Do Centralized Transactions Go Down?

Contrary to popular belief, CEX users do not actually exchange crypto or fiat currencies with each other. Instead, when they deposit their funds onto an exchange, it is that centralized exchange that takes over the custody of the assets and issues a corresponding number of IOUs to the crypto trader or investor.

The exchange then tracks every user’s IOUs internally as they are transacted in trades. The exchange serves only to convert the IOUs into actual currency at the moment a customer asks for the withdrawal of funds.

Centralized exchanges facilitate trades between users by maintaining an order book; a collection of buy and sell orders posted by individual traders or investors. CEXs aggregate orders from their users and then use designated software to match & execute the corresponding orders – be it buy or sell.

Conclusions

To sum up, it’s the user-friendliness which makes centralized exchanges much better-suited for beginner traders. They provide a digital crypto trading platform which facilitates rapid transactions, protected by robust security.

While DEX users retain custody of assets and incorporate efficient peer-to-peer mechanisms, the cryptocurrency exchange battle seems to have triumphed centralized exchanges which remain to enjoy high liquidity, trading volume and market participation.