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To understand the Decentralized exchange(DEX), the best way would be to compare it with the current centralized exchanges (CEX).
Centralized exchange and Decentralized exchange.
Exchange platforms are crucial in blockchain, it helps Defi (Decentralized finance) to grow and act as a replacement for institution-controlled fiat finance. There are two types of exchanges, one decentralized which is the focus of this article, and the other is centralized exchanges. Most people still use centralized exchanges like Binance. The functionality of both is the same as both allow users to easily access the digital assets and also brings exchanging the owned for other digital assets. But the with a difference of controlling body.
What is a CEX, centralized trading platform?
A centralized exchange (CEX) could be a room managed by a company/organization, all assets you deposit are managed by that company/organization.
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In multiple cases, it’s a lot safer to send a deposit than someone who keeps his or her property. Banks can have several security measures to stay their assets safe. Banks may also offer you services like loans as they are equipped with massive amounts of funds and have reliable relationships with customers.
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In this case, centralized exchanges become almost like banks. You will store your assets on the exchange and trust the third party — the company/organization that manages the exchange within the storage and protection of your assets.
What is a DEX, decentralized exchange?
Decentralized Exchange (DEX). is the same marketplace as we have in current traditional finance, but without any intermediary. The role of the intermediary is to store and manage the assets, and trust intermediates, these actions are performed. In Dex, there is no intermediate, but all the actions are performed on a peer-to-peer network between the users in an automated process.
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By eliminating the middle man, the transaction window is decreased but more importantly, the ability to hack and meddle is reduced drastically. An intermediary can be hacked, as it is a centralized place to target, but in a decentralized exchange where every user is part of the transaction on the chain, it is impossible to hack it.
Differences Between CEX and DEX!
A centralized exchange (CEX) and a decentralized exchange (DEX) has clear differentiation on these three categories:
Fund Control
Exchange users specialize in creating deposits to the exchange to facilitate exchanging/trading. These funds are controlled by an intermediator trading service. This implies that the order books, in addition, because the custody rights, are within the hands of centralized platform services.
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In a decentralized cryptocurrency exchange platform, users interact directly with different traders while not a central server. There’s no centralized service that owns command books and custody rights. Therefore, funds are controlled by users and participants during this platform.
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Anonymity
Several centralized exchanges every permit anonymous trading accounts on their platform. However, new government rules that have emerged in recent months have resulted in strict compliance with KYC and AML laws. it’s tough to trade anonymously on a centralized cryptocurrency exchange. In distinction, decentralized exchanges are wherever everybody will stay anonymous.
Accuracy
Centralized exchange users rely upon the platform to certify and authorize their transactions. In a way, the platform may be a third-party mediator that gives trustworthy crypto exchange services.
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With a decentralized exchange, you’re counting on a system of multiple nodes that operate, no mediator.
The reason for DEX is on the path to replace CEX.
Short process times, low fees decentralized exchanges are ready to facilitate transactions to be applied quicker, a lot of cost-effectively than centralized exchanges. The elimination of mediator authenticators considerably reduces fees and time delays before the buy/sell order is processed.
Security
Decentralized exchanges don’t keep users’ money and no organization interferes with the method, thus it’s tough for the exchange to be hacked. Meanwhile, history has recorded several attacks on a centralized exchange.
Seamless Integration
This is a serious advantage of decentralized exchanges. Several decentralized exchanges supply seamless integration with widespread hardware wallets to confirm far safer exchange/trading.
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Users will send coins directly from their wallets to the smart contracts of the many decentralized exchanges. With centralized exchanges, there’s no means for users to manually fill within the private key to transfer coins from wallets to the exchange.
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Full Control of Funds
This is a serious advantage of decentralized exchanges. Several decentralized exchanges supply seamless integration with widespread hardware wallets to confirm far safer exchange/trading.
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Users will send coins directly from their wallets to the smart contracts of the many decentralized exchanges. With centralized exchanges, there’s no means for users to manually fill within the private key to transfer coins from wallets to the exchange.
Our thoughts
Many decentralized exchanges have emerged over the years, all iterating on previous tries to contour the user expertise and build additional powerful exchange venues. Ultimately, the concept looks heavily aligned with the attribute of self-sovereignty: like cryptocurrencies, users don’t ought to trust a 3rd party.
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With the rapid growth of DeFi, DEXs & NFT’s (Non-fungible tokens) have seen huge dealings in usage. If the momentum continues, we’ll possibly witness magnified innovation within the technology across the whole business.
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