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Centralized Exchange vs. DEX Platforms: Benefits & Differences
Guest Author: Sam Bee
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Decentralized exchanges have gained popularity over the past few years because they offer the privacy they provide to traders. Additionally, Dex platforms allow crypto traders to have complete control of their financial transactions without intermediaries or third parties interference.
This article will review the key differences between a centralized exchange and a decentralized exchange. Additionally, the article will reveal the benefits of using decentralized exchanges.
We will take a look with you at how crypto traders can make use of Dex platforms.
Difference Between A Centralized Exchange And DEX Platforms
All cryptocurrency exchanges play a significant role in providing liquidity for digital assets on the crypto market. These exchanges accomplish this objective by facilitating the daily purchase and sale of crypto assets worth billions of dollars.
As a result, crypto exchanges offer traders the best ways to buy Bitcoin in 2023 and/or digital currencies.
Although centralized and decentralized exchanges operate with the same objective, their core difference occurs from their mode operations.
Centralized exchanges carry out a custodial role in crypto transactions by acting as a middleman between a buyer and seller.
Generally, centralized exchanges offer more reliability since they are controlled and operated by companies.
Additionally, despite the growth of Dex platforms, a large percentage of crypto transactions are handled by centralized exchanges.
A Few Notable Differences
While the advantages of centralized exchanges are numerous, there are several flaws in their mode of operation.
Risk of Hacks
For example, centralized acts as custodians of trader’s funds, making them targets for hacking. There are several successful hacks carried out against centralized exchanges resulting in losses worth millions of dollars.
Centralized exchanges often attach high transaction fees to transactions carried out by crypto traders on their platforms.
Centralized exchanges require users to complete their KYC (Know your customer) before joining their platform. This process prevents crypto traders from maintaining anonymity when transacting cryptocurrencies.
Unlike centralized exchanges, Dex platforms remove the need for intermediaries in the transaction process. As a result, decentralized exchanges are referred to as non-custodial platforms.
Dex platforms do not require players to provide their information. As a result, transactions on these platforms are generally anonymous.
Since decentralized exchanges are non-custodial, all crypto transactions on such platforms are executed using smart contracts, making trades peer-to-peer. The result is those transaction fees attached to crypto trades are lower when compared to centralized exchanges.
Benefits of Decentralized Exchanges
There are many benefits to using a dex platform over a centralized exchange. This section highlights some of those benefits.
Unlike centralized platforms that regulatory authorities can shut down, dex platforms can’t be closed because a central authority does not control them. As a result, they can be used by crypto traders located in different locations.
Additionally, Investors can invest as little or as much as they wish to benefit from trading activities, and peer-to-peer transaction fees are far lower than those charges attached to transactions on centralized exchanges.
Decentralized exchanges let users exchange their assets directly without involving a third party. Hackers cannot target or exploit Dex platforms, and users are more protected against theft and hacking.
Market Manipulation Prevention
Since decentralized exchanges allow for peer-to-peer trading of cryptocurrencies, the platform helps to prevent market manipulation. The result is that traders on the platform are safe from wash trading and fake trading.
In a decentralized exchange, users are not required to fill out know-your-customer (KYC) forms, which offer privacy and anonymity. Consequently, dex platforms help users carry out transactions without revealing their identities.
How To Make Use Of Dex Platforms
There are several types of dex platforms available to crypto traders. In this section, we will review how to use DEX platforms.
The views and opinions expressed within this material are those of the author(s) and do not necessarily represent the official position or viewpoint of StockMarketEye. Any interpretations or conclusions drawn are the individual’s own and not endorsed by our organization.