Centralized Exchange vs. DEX Platforms: Benefits & Differences

June 22, 2023 by Guest Author

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.

Reliability Differences

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.

Fees

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.

No Intermediaries

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.

Anonymity

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.

Financial Inclusion

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.

Security

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.

Anonymity

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.

Choose a DEX Platform: You should always assess the reputation, token support, and transaction fees of any platform before joining. A few well-known platforms include Uniswap, PancakeSwap, and Bancor.

Set Up Your External Wallet: You will need to have an external wallet in order to use DEX platforms. You can use an external wallet like MetaMask or Ledger. Be sure to keep your private keys secure, as you will be responsible for your assets.

Fund Your Wallet: Transfer the cryptocurrency you want to trade from another wallet or exchange to your external wallet. Remember that DEX platforms do not support fiat currencies, so you’ll need cryptocurrency to start trading.

Link Your Wallet to the DEX: Once your wallet is funded, connect it to the DEX platform. Simply log into your wallet through the DEX interface.

Start Trading: Choose the crypto pair you want to trade. You can now make transactions directly from your wallet. Smart contracts make these transactions trustless and secure.

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