Cryptocurrency trading has gained immense popularity, and investors have two exchange options: Centralised Exchanges (CEXs) or Decentralised Exchanges (DEXs). This article will compare the different aspects of the two exchanges, making it easier for investors to choose the right exchange.
What is a CEX? CEX is a cryptocurrency exchange operated by a centralised company that owns it. CEXs are online trading platforms that match buyers and sellers via an order book.
Pros of a CEX:
- High liquidity and trading volume.
- Support fiat-to-crypto and crypto-to-fiat conversions.
- User-friendly interfaces to attract new investors.
- Additional features like staking, lending, borrowing, and leveraged trading.
Cons of a CEX:
- Rigid KYC policies.
- CEXs require users to upload personal details.
- Possibility of hacking and loss of funds.
Holding Assets: Self-reliance vs. Security
Holding your assets in a CEX might provide a level of security, but it goes against the self-reliance ideals of the crypto world. Conversely, keeping your assets in a DEX gives you full control, but private keys can get lost or destroyed, leaving assets irretrievable. For instance, Welshman James Howells lost access to 7,500 bitcoins that he mistakenly threw away on a hard drive in 2013. The bitcoin would be worth over $100 million as of Nov. 2022, and he has unsuccessfully appealed to the local council to excavate its landfill site.
Regulations and Liquidity
The popularity of DEXs might reflect their success in dodging regulatory hurdles. DEXs do not act as financial intermediaries or counterparty, and they do not have to meet KYC or anti-money laundering (AML) standards. However, DEXs might struggle when working with larger investors due to insufficient liquidity, causing unplanned additional costs. New aggregator protocols like 1inch help larger investors avoid liquidity problems when using DEXs. DiversiFi, a DEX, aggregates liquidity from both kinds of exchanges to help users conclude larger trades more efficiently.
Choosing the Best Exchange
When choosing an exchange, two things are essential: ease of use and control over your funds. If you are primarily interested in ease of use and are uncomfortable with being in total control of your wallet, a CEX is probably the best option. If lower fees and more control over your funds are important to you, a DEX is the way to go. Regardless of the exchange chosen, investors should know how to get their crypto off an exchange and into cold storage to keep their wealth safe in the long term.
My CEX of choice id dYdX.
1Bitcoiner.com 
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