There’s been an ongoing debate about the perks of decentralized vs. centralized exchanges. One thing is clear, centralized exchanges are much faster and they are cheaper to operate. They do all their transactions in the backend in a database instead of doing them on the blockchain. This makes all transactions much faster and exchanges more liquid. On the other hand, they are becoming a single point of failure and the approach is far from the idea of the decentralized world. Whereas it is pretty hard to operate a decentralized exchange, due to delays in transactions and heightened costs since every transaction needs to be made on the blockchain. Most of the decentralized exchanges are still missing volumes and integrations with other blockchains. They usually have implementations only for ERC20 tokens.

“The dream is getting to a point where decentralized exchanges are so great that centralized exchanges no longer have any advantages. Today, that point is a very long way off, and we’ll need centralized exchanges to get there,” says Jesse Powell from Kraken

For now, there’s a middle way. Here the transactions are still happening on the blockchain, which is slower and more expensive, but you have the order books off-chain. Therefore the orders are still pretty quick if somebody wants to sell or buy. This is kind of a hybrid model.

However, there is another scenario which exchanges have to consider: if you have an ERC20 standard exchange it is simple to integrate and most of DEXs are operating this way. But, then when you want to start trading with other currencies things are becoming much harder.

What exchanges started to do is to create “bridges” between blockchains. A user has to transfer for example Bitcoin to an exchange wallet and after some time the exchange creates a representation of Bitcoin that can be traded with other tokens. In this case, again we are losing control of the funds and it’s not quite decentralized anymore. I tried using this type of bridges and multiple times my funds were stuck for hours before I was able to use them or see them on my private wallet.

One of the main arguments that a DEX is a safe solution where you always have full control of the funds and don’t have to worry about hacks is also not 100% valid. You always need to verify everything and make sure that your own security is on the highest level. Just looking at a few examples from this year like Bancor or Etherdelta.

Personally, I would love to see all the users and all the liquidity moving to DEXs but it’s still a long way. Last year everybody was talking about decentralized exchanges, new ones were popping out almost every day. Today everything is still happening around centralized exchanges even if we are aware that our funds are out of our control. Maybe projects from giants like Binance or Bitfinex will make a change.