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Decentralized Exchanges Are Nowhere Close to Centralized Exchanges.
For few years, DEXs have taken a major share in crypto trading due to their user-friendly nature and allowing the users to control their private key. It all started with the mining of the genesis block of BTC by Satoshi Nakamoto in 2009. Soon after that, Coinbase emerged as one of the largest centralized exchanges across the globe. The majority of the crypto exchanges that are used in today's time are centralized one, including Binance, Bitmax etc. But the success of decentralized finance has made our focus shift on DEXs, including Sushiswap, Uniswap, Compound Finance etc.
Let’s understand the difference between DEXs and CEXs:
You might probably know that centralized exchanges are those which act as a third party between the seller and the buyer. Most of the crypto transactions go through CEXs. For example, Coinbase, Binance and Kraken. These platforms match the sellers and the buyers via an order book, functioning almost similar to that of an online brokerage account.
On the contrary, Decentralized exchanges are autonomous financial protocols that are powered by smart contracts and do not involve any intermediary—for instance, Uniswap, Sushiswap and Pancakeswap.
In a nutshell, the difference lies in control, i.e., centralized exchanges control your funds, while in decentralized exchanges, you have all the control over your funds during trading.
Are DEXs better than the CEXs?
We are pretty much aware that the DEXs offer limited functionality, and they are not much efficient compared to the centralized exchanges because of the scalability issues of blockchains. Despite their lower efficiency, DEXs holds many advantages, including privacy, anonymity and security.
When you use a decentralized exchange platform for trading, you only need to connect your wallet to sign a transaction. Unlike CEXs, you are not required to undergo any identity verification process. Hence, DEXs are more private and anonymous.
Talking about security, DEXs are indeed more secure for the reason that they are non-custodial, and there is no chance of leakage of user's private data. The chances of hacking a DEXs are comparatively less because hackers cannot get into the wallet. After all, decentralized exchanges do not hold user's private keys.
CEXs hold more risks while trading and investing:
No doubt that trading in cryptocurrencies is always risky, no matter what exchange you use. But, the risks might vary according to the choice of the platform. Let's understand this briefly.
When you use a centralized exchange platform for trading, you are required to verify your identity. It indeed is a crucial step, but a single breach can lead to your data leakage, and you can be the target of a scam. Well, it is definitely not a new thing to hear; Hacking and scams are pretty common in the crypto space.
Secondly, centralized exchanges are subjected to financial regulations that can be a risk for the funds present in your wallet.
There was a time when crypto enthusiasts believed that decentralized exchanges could never stand against the centralized exchanges giants in terms of trading. Even though compared to CEXs, DEXs are a little inefficient; we cannot ignore the fact that DEXs are actually outperforming the centralized ones.
Many of the crypto enthusiasts think that the DEX's market share could drastically increase in the near future because many other established crypto exchanges are working on their decentralized version. Still, it will be hard to say whether Decentralized exchanges can completely take over the centralized ones because both have their benefits and disadvantages on their own terms.
But, keeping in view the unmatchable security and privacy of DEXs, we can say that DEXs are not just closer to the CEXs in terms of their functionality; these are even better!