Broadly speaking, there are two categories of cryptocurrency exchanges: centralized and decentralized. Each category has advantages and disadvantages.
centralized exchange
A centralized crypto exchange (CEX) is managed by one organization. The centralized exchange allows users to convert fiat currencies such as the Australian dollar directly into cryptocurrencies, making it easy to start trading cryptocurrencies. The majority of cryptocurrency trading takes place on centralized exchanges.
Some crypto enthusiasts oppose centralized exchanges as they go against the decentralized spirit of cryptocurrencies. Even worse, in the eyes of some cryptocurrency users, companies or organizations may require users to follow know-your-customer (KYC) rules. These require each user to identify themselves, just as they would when applying for a bank account, to combat money laundering and fraud.
There is another concern with centralized exchanges. That's hacking. With CEX, exchanges hold the cryptocurrencies traded on their platforms in the short term, at least while the trades are taking place, increasing the risk that hackers can steal the assets.
To address this risk, centralized cryptocurrency exchanges have strengthened their security in recent years. Among other strategies, they now store most of their customer assets offline and have insurance that covers loss of cryptocurrency in case of hacking.
If you like the convenience of a centralized exchange, you can reduce your risk by transferring your cryptocurrencies to another hot or cold wallet outside of the exchange.
decentralized exchange
A decentralized exchange (DEX) is a marketplace where users can trade cryptocurrencies directly with each other without the intervention of an intermediary. This means there is no need for a third party to oversee the transfer and storage of your funds. Instead, DEXs enable the exchange of assets using blockchain-based smart contracts, effectively replacing traditional intermediaries such as banks, brokers, and CEXs.
In contrast to transactions processed on CEXs, which lack transparency and rely on intermediaries, DEXs offer complete transparency regarding the mechanisms involved in transferring and exchanging funds. Additionally, DEXs reduce counterparty risk by eliminating the need for user funds to pass through third-party cryptocurrency wallets during trades. This helps reduce the risk of systemic centralization within the cryptocurrency ecosystem.
Unlike centralized DEXs, DEXs typically do not use an orderbook system for trading. Instead, use Automated Market Maker (AMM). An AMM can be thought of as a money robot that can quote prices between two or more digital assets. This system is beneficial in that it creates instant access to liquidity that would not otherwise be accessible and allows trading of illiquid assets. With access to instant liquidity, buyers and sellers can execute trades immediately without having to wait for their orders to be matched with a counterparty. Liquidity providers to DEXs earn fees from trading activity, creating opportunities for passive income generation.
However, DEXs have some drawbacks. The big drawback is that decentralized exchanges are much more difficult to use from an interface standpoint and currency conversion standpoint. For example, decentralized exchanges do not always allow users to deposit dollars and exchange them for cryptocurrencies. This means you must already own the cryptocurrency or use a centralized exchange to acquire it and use it on a DEX. Because of this, many new investors end up sticking to his CEX due to its ease of use and one-stop-shop features.
Global cryptocurrency exchange
There are around 600 cryptocurrency exchanges around the world that encourage investors to trade. Bitcoin, Ethereum and other digital assets. However, cost, quality, and safety vary widely.With a focus on regulatory compliance, Forbes Digital Assets Top 60 Cryptocurrency Exchanges In the world.
