Towards the center!

With the advent of blockchain technology, exchanges have been divided into two types. All existing exchanges that managed the central ledger were classified as Centralized Exchanges (CEX). On the other hand, a Decentralized Exchange (DEX) has emerged that enables P2P-based transactions by using the blockchain technology to decentralize the ledger.

Decentralization of the ledger is definitely a revolutionary idea. But the realization of complete DEX has not yet been achieved. Many developers are trying to implement DEX, but there are still a number of technical problems. That’s why cryptocurrency exchanges are still centralized operations.

Then what exactly is CEX? Which part of CEX caused the dissatisfaction that led to the development of blockchain? Today, let’s look at the advantages and disadvantages of the CEX in comparison to DEX.

It is clear that CEX has existed for a very long time throughout history. Exchanges have acted as a broker to guarantee the credit of the two parties who wish to trade. However, a lot of information is needed to guarantee this credit. The personal information and transaction details of the trader are collected by the exchange and kept in the centralized ledger. This important information managed by the central server can easily be manipulated or leaked by hackers. Exchange hacking issues in recent years have occurred because of the centralized ledger.

The centralized exchange also forces traders to deposit funds in the exchange. This makes it easier for exchanges to manage funds in bulk, but the customer has no control over their funds. The customers may not be able to withdraw when they want to, or may not even receive their assets when the exchange is hacked.

In this situation, blockchain has emerged to address the security issue, fund control issue, and securing trust between trading partners issue. However, despite the emergence of DEX, CEX is still strong. Not only is DEX not yet fully developed, but CEX has its own great advantages. First, CEX is very fast because the deal is handled by the exchange-owned server. It takes 5–10 minutes for a Bitcoin transaction in DEX to go through, whereas CEX takes less than a second.

Another strength of CEX is the ability to trade between various blockchain coins. While DEX is still limited to supporting transactions between tokens within the Ethereum platform, CEX can exchange various types of coins on various bases.

In addition, CEX has more liquidity than DEX. When the liquidity is actively supplied, the user is more likely to trade at the desired price. Because DEX is a new technology that has many restrictions on transactions, there are not enough users to ensure active trading yet. On the other hand, CEX can easily supply liquidity as it has a lot of active users due to its conveniency and ability to handle large investments. The fact that CEX has a longer history of cryptocurrency trading than DEX can be another reason why the liquidity supply is active in CEX.

So if you are a trader who wants to trade at the price you want at high speed, or who wants to trade coins from various platforms, trading with CEX would be the great choice.