In the world where cryptocurrencies have become a global phenomenon, it is important to know the basics of trading. We have decided to take a role of teachers and explain the difference between centralized and decentralized exchange platforms, as well as list their pros and cons. Hopefully, this brief overview will be helpful enough to make a choice for a hesitant customer or to simply broaden one’s horizons.

Centralized exchanges

Centralized crypto exchanges are most similar to traditional stock markets. Imagine a situation — if you want to purchase Bitcoin (at a set price), your order will be automatically connected to the matching sell order by the platform itself. The mechanism of how centralized exchanges work is as simple as that. This convenience, however, comes with a price as the intermediaries (meaning the platform) collect their fees. Centralized crypto exchange platforms are owned and operated by a company that has a total and complete control over all the transactions made through their system. The clients of centralized exchanges also do not have access to their private keys. This means that the user of a taken exchange puts all the trust in the hands of the operators of the platform. It may sound questionable, but centralized exchanges actually have a higher trade volume than their decentralized competitors. CCE (standing for centralized crypto exchanges) can be called convenient for several factors. First pro point is that centralized exchanges usually have more advanced features and tools, but are still easy to use. Second good thing about centralized exchanges is their liquidity, which is rather high. There is always a risk of a hacker attack on big centralized exchange platforms (decentralized platforms are in less of a risk zone at this point), but clients of CCE are provided with account insurances. This means if something goes wrong with the platform, the users will still be able to get their funds back.

However, there are some cons of using CCE as well. The process of trading on centralized exchange platforms is not anonymous and requires documents for some of the features. Beside that, the exchange is controlled by a central authority and not by users themselves.

Examples of centralized exchanges:

Poloniex Bittrex Simplefx CEX BTC-E

Decentralized exchanges

As it might have already been obvious, decentralized crypto exchanges, unlike their centralized counterparts, do not require any third party involved to perform their operations. The system of a decentralized exchange is quite simple, too. Let’s take the same example from the paragraph above. You want to buy one Bitcoin. A decentralized exchange will match you with a person behind a selling order (putting it simply, with a person who wants to sell one Bitcoin). From there, you and another user will negotiate and finalise the trade. There are quite significant advantages of using decentralised exchanges. First of all, DCE are more private. As it was told above, centralized exchanges often require personal information and proof of one’s identity. When using decentralized exchange platforms, the only person you have to disclose your identity to is the person you are making a trade with. Also, customers do not have to worry about their cryptocurrency being secure when using such kind of a platform, as coins are not held by the exchange.

Sure, there are many advantages of using decentralized exchanges, but there is always place for some drawbacks, too. First of all, there is an issue of lower trading volumes. Decentralized platforms have smaller audiences, so finding an acceptable deal can become challenging. The same issue impacts liquidity — if it is harder to sell cryptocurrency, it is harder to liquidate it into cash. Accounts on DCE platforms are uninsured. Most importantly, the usage of decentralized crypto exchange platforms is not for a complete beginner (DCE are not as easy to use as CCE).

Examples of decentralized exchanges:

Bitsquare NVO (Still in development) BlackHalo Coinffeine Blocknet

Decentralized exchanges are still a work in progress. Probably, now they are not as developed and massive as the centralized exchanges, It can be even said that now they are slightly overlooked, but, possible, in the nearest future there will be a tendency to switch to more decentralized models. After all, the whole world of cryptocurrency kind of carries the idea of decentralizing as such.

To conclude this article it is necessary to say that the choice of CCE or DCE almost completely relies on the goals the user wants to achieve. As it was listed in pros and cons section, liquidity can be achieved more successfully when using centralized crypto exchanges. In contrary, if the goal of the taken user is anonymity, putting decentralized exchanges in favour is obvious. The advice is — understand your goals, evaluate your knowledge and choose wisely between the two options!

Meanwhile, if you don’t want to deal with the hassle of trading on exchanges, you can always use the help of instant exchange services. ChangeNOW is one of them and we are glad to be the place where you can swap more than 150 cryptos — easy as cake!