Centralized vs Decentralized Cryptocurrency Exchange — An Exclusive Comparison Guide
In recent years, crypto exchange is becoming an emerging business model among startups and speculators. It is because of the growing prominence of crypto coins, blockchain technology, and crypto tokens. Blockchain technology gave birth to many cryptocurrencies and it is widely used in several major industries. The term Cryptocurrency is a benchmark in all digital exchange platforms. Crypto is used for payments, trading, boosting the brand, transactions, etc. This insisted many traders and organizations invest in crypto assets.
The upsurge usage of crypto coins made a huge demand for crypto trading platforms. A Cryptocurrency Exchange helps users trade, buy, or sell Bitcoins and altcoins in a hassle-free manner. Generally, the exchange platforms support all major crypto coins for trading with a wide range of exchange options. Crypto assets like bitcoin, dash, ethereum, EOS, ripple, litecoin, dogecoin, etc. Crypto exchange is the best business model so it benefits both the users and the exchange owners. One can earn a lucrative amount of money in a short time through multiple ways by starting a cryptocurrency exchange business. That’s why cryptocurrency exchange development plays an important role in the blockchain industry.
When it comes to crypto exchange, two different types of crypto exchanges are prevailing in the blockchain space such as a centralized and decentralized crypto exchange. These two crypto exchange types are mostly used by traders, investors, and other individuals. When it comes to crypto exchange development, startups prefer any of these types for starting the exchange business.
If you are new to this, then you might have confused about which to prefer. So in this article, let me explore the difference between the centralized vs decentralized crypto exchange concepts with a detailed comparison.
Let us begin this exclusive guide with…
What is a Centralized Cryptocurrency Exchange?
A centralized crypto exchange is also recognized as the traditional crypto trading platform. In this kind of platform, the users can buy, sell, or trade all the crypto assets only with the help of a middle-man or an admin. Besides, the crypto transactions can be done in two ways either by fiat-to-crypto currency or crypto-to-crypto currency. The centralized crypto exchanges also have a high-end security system to avoid cyber-attacks and other malware activities. Here the crypto asset will be under the control of the admin of the exchange until the transaction gets successful. If any fraudulent activities arise, then the admin of the exchange will instantly solve the problems.
Currently, there are many popular centralized crypto exchanges in the marketplace. But among them, some are the best such as Bittrex, Coinbase, Poloniex, Bitfinex, Bitpanda, and Binance. These are the best-known traditional crypto exchanges in the global market but there are many more. These popular crypto exchanges were growing as the cryptos did.
In the centralized crypto exchange, privacy is less compared to the DEX platform. Besides, the owner of the exchange can freeze user funds at any time. But as an owner of a centralized exchange, you can earn an ample amount of profits by collecting trading fees, withdrawal fees, deposit fees, advertisement, margin trading, etc. That’s why there is a great demand for centralized crypto exchange development in the blockchain industry.
Benefits of Centralized Cryptocurrency Exchange
- Users can get many updated trading options like margin trading, crypto derivative options, instant buy & sell option, live order book system, split trading, multi-crypto wallet support, trade matching engine, and a lot more
- Users can trade a variety of crypto coins in a trouble-free manner.
- The liquidity of centralized exchange is high.
- A centralized crypto exchange has an IEO launchpad feature which is a token sale platform. So crypto startups can list their newly released crypto tokens and cryptocurrencies in this platform for raising the funds securely. Besides, the owner will charge a fee for listing the new token.
- Here admin can easily monitor and manage every crypto transaction that is happening on the platform.
- The centralized exchange is easy to handle and there is central storage for the server.
- The crypto funds are stored in the central server. So there is only a single way path for data. Once the trade matches, the transaction happens fastly.
- Centralized exchanges are highly stable and predictable
- This kind of exchange platform provides a user-friendly trading experience and progressive trading systems for the users.
- The admin of the exchange can collect fees as a commission charge for every successful trading, withdrawal, and deposit.
- By implementing an escrow feature in the centralized exchange, the owner of the exchange can charge a separate fee from each user during the time of crypto transaction.
- No intervention of government
Now, let us see…
What is a Decentralized Cryptocurrency Exchange?
The decentralized cryptocurrency exchange is also known as a peer-to-peer crypto trading platform or DEX platform. In this platform, the user can buy, sell, or exchange reliable digital currencies from the user to the user. In this platform, there will be no admin or an intermediate to monitor the user’s crypto transactions. If you are a user, then you can perform safe and secure cryptocurrency transactions on this DEX platform.
Many users prefer the DEX platform for crypto trading because it does not hold or freeze any funds of the users. Moreover, now many crypto trading platforms are adding DEX as a feature in their trading platform. Even though, the world’s popular crypto exchange is having a Binance DEX platform for their global traders. Therefore, global crypto users can safely trade their desired crypto coins easily.
The DEX platform is not handled by any intermediary and the service is completely operated by software that works with the blockchain network. Some of the best decentralized crypto exchanges are IDEX, OpenLedger, Ox, ShapeShift, EtherDelta, Waves, Changelly, Bitsqueare, etc. One of the main benefits is here the users can carry out their negotiations directly between them. Apart from this, users can always control their passwords and all their funds. Also, they can even use their private digital wallets for transferring funds.
The government entities and regulations do not exist in this DEX platform. Therefore, they have a high level of anonymity when making crypto transactions. The decentralized exchange does not any personal information for registration. So there will be more privacy than the traditional crypto exchanges. There is no possibility of hacking or cyberbullying because the DEX platform is fully protected with tightened security systems. There are some essential reasons to choose a DEX platform. Such as
- Control over your funds
- High privacy
Benefits of Decentralized Crypto Exchange
- Users can have full control over their accounts and money.
- Like centralized exchange, it also has some essential features like p2p swap, atomic swap, non-custodial assets, multi-crypto support, etc.
- Users can directly connect with other users in a hassle-free manner.
- KYC is not compulsory on the DEX platform.
- High privacy and supports anonymous trading
- No one can freeze the user funds in the DEX platform
- If you are an owner or an admin of the exchange, then the crypto startups will seek help to list their newly released crypto coin or token in your exchange.
- The owner of the exchange can charge fees for the withdrawal or deposit. Each DEX platform has its fees structure
- User’s data is stored in blockchain technology which is immutable and hacking is not possible.
- In the DEX platform, there will be no intervention of third parties during the time of the crypto transaction.
- Security is the major benefit of the DEX platform. The decentralized exchange platforms are completely developed with high-level security systems to neglect cyber-attacks and other fraudulent activities.
Centralized vs Decentralized Crypto Exchange Comparison Table
I hope you have some idea of what is a centralized and decentralized exchange with its potential benefits. For your clear understanding, here is an ideal comparison table that helps you to know some differences in technical specifications of both centralized vs decentralized exchanges.
Top 6 Key Differences of Centralized vs Decentralized Crypto Exchanges
As previously said in the comparison table, both centralized and decentralized crypto exchanges are different in many ways. But among them, there are some important key differences between them that you must know. They are…
The centralized crypto exchange makes it easy for new users to get started trading crypto coins. Creating an account and placing trades can be accomplished in a short time easily in a centralized exchange. On the flip side, the DEX platform can make crypto trading complicated. Because here the responsibility lies with the user and not a third party. If a user makes a mistake, then there is no way to fix it.
Centralized exchanges make things easier for users for creating a single point of failure. If an anonymous hacker attacks this single point and obtains private keys that protect user’s accounts. Then they can compromise the whole exchange and funds. Whereas the DEX platform is more secure than centralized crypto exchanges. When compared to a centralized exchange, the Decentralized exchange has high-end security functions.
The centralized exchange charges a fee when a trader uses their trading service. Every crypto transaction involves a fee and withdrawal of crypto coins may also come with a fee. The DEX platform has a low fee structure because they don’t have the overhead expenses.
One of the main differences between centralized vs decentralized crypto exchanges is their liquidity. Centralized exchanges have more liquidity as they have more active users and the users are placing more orders. On the other hand, the DEX platform typically has only a few users and has less liquidity. The lack of liquidity might pose problems for crypto investors.
The centralized exchange asks for a lot of personal information for creating an account. Like the name, email address, government-issued ID, etc. This is done to comply with crypto regulations like KYC/AML laws. On the other hand, the decentralized exchange does not require personal information to get started with crypto trading. So here privacy is high.
Another most notable difference between centralized vs decentralized crypto exchanges is the speed. The DEX platform performs very slowly than the centralized trading platforms. Because the trades placed on centralized crypto exchanges take about only 10 milliseconds to execute orders. However, the decentralized exchange can take about 15 to 60 seconds to place an order.
From the previous section, we can see the benefits of both centralized and decentralized exchanges. Both have their features, pros, and cons. When it comes to the crypto exchange business, you need to choose the right type of crypto exchange. After choosing the type of exchange, you need to hire an experienced team of blockchain developers from a trustworthy cryptocurrency exchange software development company in the blockchain industry. They will help you to build a feature-packed crypto exchange platform as per your business needs at a reasonable cost. I hope this guide will be helpful for starting a crypto exchange business.