In today’s cryptocurrency market, there are thousands of exchanges to choose from.

There are two types of exchanges you will encounter—centralized exchanges and decentralized exchanges.

To find out what the difference between the two is, and the best option for you—read on!

Middle Man Money

Think of the monetary systems you use. What do they all have in common?

  • Venmo
  • CashApp
  • PayPal
  • Your bank

These “exchanges” all use a third party to handle your money. Centralized exchanges operate in the same fashion. The middle man is the centralizing.

What is a Centralized Exchange?

Centralized exchanges (CEX) are online platforms to transact cryptocurrency. They offer an easy on-ramp for new users especially. 

Who is this middle man you may ask? Many of these are private companies such as Binance, Coinbase, or Kraken. Due to this, there is usually a fee for operating transactions on their platforms.

In many ways, this defeats the purpose of what crypto was trying to avoid in the first place. The beauty of cryptocurrency is that we are free from the middle man. We no longer have to rely on a bank, government, or someone else to handle our funds.

While ease of use and familiarity may go up, security and privacy tend to go down.

A common need for these services is KYC, Know Your Customer. This is a standard that collects the information of the individual, stored on servers. The very thought of this will deter avid cryptocurrency users away.

Another thing to note is that you will not have access to your private keys, thus your funds. No wonder exchanges are such a honeypot for hackers! Unfortunately, it is all too common for exchange hacks every year.

Centralized isn’t bad per se, but with crypto, we can decentralize!

What is a Decentralized Exchange?

A decentralized exchange (DEX), is the polar opposite of a centralized exchange. Decentralized exchanges aim to put the power back in the people’s hands. This is what bitcoin and cryptocurrency stand for.

Decentralized exchanges, such as, operate differently than centralized exchanges. Now we are no longer dealing with a central authority. Instead, we are operating in a “trustless” peer-to-peer model.

Much like how torrents operate when downloading media, we can now exchange cryptocurrencies. We need not trust any third party. The practices of exchange are more secure when following proper guidelines.

Advantages of a Decentralized Exchange

So, what are the main advantages of a decentralized exchange? Well, for one, they can’t be shut down.

Because there is no one single point of failure, decentralized exchanges are much safer. Our private keys are stored on our hardware wallets and we exchange crypto-to-crypto, peer-to-peer.

Decentralized exchanges free people up to a whole new World otherwise not available. This is why cryptocurrency and decentralized exchanges are so exciting!

We no longer have to rely on anyone but ourselves. Our governments and fiat currency are no longer the only way. There is a way out, whether by choice or force.

To Centralize or Decentralize?

To centralize or decentralize—that is the question!

If you are looking for a more traditional approach to things, choose centralized exchanges. Centralized exchanges are a goods compromise when trading cryptocurrency. While you may give up some freedoms, you make up in volume and liquidity.

Decentralized exchanges are the avenue you’d take if you want total autonomy of your crypto. With this comes great responsibility. You can no one to look out for or blame other than yourself.

We encourage you to do your own research and find the best option for you. Read our blog to unpack the best cryptocurrency information you can find!