Let’s explore the difference between Centralized and Decentralized Crypto Exchanges. The prominence of cryptocurrency is growing larger day by day and it has grown vastly in the last few years which in turn accentuates the business outfits’ requirement for cryptocurrency in order to carry out their trading needs effortlessly. Cryptocurrency transaction benefits the shareholders to buy, sell and exchange cryptocurrencies at a rapid phase.
Centralized cryptocurrency exchanges act as a mediator between both buyers and sellers. These centralized cryptocurrency exchange permits their customers to buy and sell cryptocurrencies through authorized currencies like US dollars or digital resources like BTC and ETH. Thus, centralized cryptocurrency exchanges adopt the role of brokers in dealings and guardians while protecting the assets.
Salient Features of Centralized Exchange
Centralized cryptocurrency exchanges have an edge over decentralized exchanges in terms of functionalities as it assists in enhancing the trading experience through margin trading, portfolio management tools, and a host of other options as well.
Another important feature of centralized exchanges is the transaction execution speed. This is comparatively better than the decentralized exchanges. Also, the compliance factors of centralized exchanges have an upper hand when compared with decentralized exchanges, as it has been a debatable subject for decentralized exchanges.
Centralized exchanges are easily regulated while decentralized exchange follows a complicated regulation strategy. The centralized exchange has the potential to handle a higher trading volume compared to a decentralized exchange. The centralized exchange has a lot of features for trading while the decentralized exchange has very limited options. Centralized exchanges preserve a KYC database along with the software used to ensure the trades are seamless and without loopholes. Centralized exchange handles authorized currency forms in trading making it safer and more secure than decentralized exchanges.
Benefits in nutshell
- Simplified and easily manageable platform.
- Additional security protection will be an added asset.
- Easily prone to hacking and threats from cybersecurity.
- It is basically controlled by a centralized unit and it can be theoretically closed.
Decentralized exchange is an alternative to the centralized exchange where no single unit controls the assets. On the contrary, smarter contracts and apps are utilized to program trading and transactions. Hence, this concept is much more secure from security breaching if and when the smarter contracts were structured appropriately.
Salient features of decentralized exchange
Decentralized exchanges differ from centralized exchanges in which customers are granted access to monitor their assets by processing their actions on their blockchain. These decentralized exchanges operate mostly on AMM (Automated market maker) or by the traditional order book method. The key aspect of a decentralized exchange is to execute the transaction swiftly when compared to centralized exchanges. They achieve this by removing the intermediaries that charge a stake in the form of transaction fees on the centralized exchanges.
- Private and anonymous.
- Transferring assets to a third party are not required.
- One of the major drawbacks of decentralized exchanges is the failure to reach liquidity levels when compared with centralized exchanges.
- Trading in authorized currency is not an accepted form. This causes a major risk for the traders as they might end up losing the entire investment if the transaction turns out to be fraudulent.