Decentralized Vs Centralized Exchanges

Decentralized Vs Centralized Exchanges – A Comparison!

A number of cryptocurrencies with different values are available in the crypto market today. Users are trading the currencies they have with the more popular ones. The trading of currencies happens in exchanges.

Decentralized Vs Centralized Exchanges

A user can exchange one currency for another in exchange. The exchanges can be a body, an organization, or simply a technology. Exchanges are of two types, Centralized and Decentralized. In this article, we are talking about the comparison between them.

Decentralized Vs Centralized Exchanges

What is the Centralized Exchange (CCE)?

Centralized exchanges are the same as that traditional stock exchanges. The businesses that own and run these kinds of exchanges have complete control over all transactions. The users deposit their currencies to the exchanges and the exchanges are responsible for all the transactions. In a centralized exchange, the central body chooses the transactional mechanism.

What is Decentralized Exchange (DCE)?

A decentralized exchange is not controlled by a company or any intermediaries. This type of exchange uses blockchain technology for transactions. The users have complete control over their funds and transactions.

The greatest aim of a decentralized exchange is to reduce the risk of hacking and thus protect the funds of the users. The decentralized exchange solely permits cryptocurrency swaps.

Comparison between Centralized and Decentralized Exchanges.

  • Trade Volume: The centralized exchange has a higher trade volume compared to its decentralized counterparts. About 99% of trade happens in CCE. The lower trade volume in DCE is due to its difficult usage. DCEs are not able to handle a large number of transactions simultaneously.
  • Mode of Payments: Centralised exchanges allow users to exchange their cryptocurrencies for physical currencies and vice-versa. They also allow direct bank payments or credit card payments for their users. Decentralized exchanges only accept cryptocurrency payments and trades.
  • Security: Centralised exchanges are prone to attacks from hackers. Software flaws or poor management are to blame. Many exchanges like MtGox, Coincheck, etc. were hacked and currencies worth a million were stolen. DCEs are less prone to attacks because of their distributed nature of nodes.
  • Government Policies: CCEs are physical exchanges that are located in a particular county; as a result, they are required to abide by all applicable laws. Because of the worldwide distribution of DCEs, government intervention is not possible.
  • Privacy: CCEs provide less privacy because the user needs to provide a large amount of personal information. DCEs provide a high level of privacy. All the transactions are anonymous.
  • Insurance of Account: In CCEs, all the user accounts are insured and if something wrong happens, the user will get his money back. Whereas DCEs are not insured.
  • Transparency: Users are aware of every aspect of CCEs, including office locations, servers, etc. DCEs do not have any formal location do that the user has less knowledge.

Final Verdict On Decentralized Vs Centralized Exchanges

From the above comparison, it is clear that both the exchange types have their own pros and cons. CCEs are more user-friendly and popular than DCEs, although providing stronger security. But if the Decentralized Exchanges improve their functionality in the future, they may replace their centralized counterpart.

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