Crypto Exchanges: CEX vs DEX and DEX as the future.

Centralized exchanges ( CEX) and decentralized exchanges(DEX) are the two most prevalent types of bitcoin exchanges that are currently in operation. Both have acquired more attention in the year 2020. Let’s learn more about these exchanges as we go further.

What is a CEX?

A centralized exchange is a crypto platform that allows parties to securely trade digital assets. These exchanges offer a setting in which buyers and sellers may conduct deals swiftly.

By acting as market makers, they offer liquidity for the tokens they support. All transactions in these exchanges are done electronically and then are recorded in the blockchain that supports the specific digital assets being swapped.

Users of CEX do not swap crypto or fiat currency. As an outcome, when traders deposit money on an exchange, the latter assumes custody of those funds and gives IOUs to the trader. The exchange records each user’s IOUs as they trade and only turns them into genuine money when funds are withdrawn.

What is a DEX?

A decentralized exchange (DEX) is a peer-to-peer platform where crypto traders can deal directly. DEXs enable financial transactions without the involvement of banks, dealers, payment networks, or any other kind of middleman.

Examples of popular DEXs are Uniswap and Sushiswap, which use the Ethereum smart contracts and are part of a growing suite of decentralized finance (Defi) technologies that make a wide variety of financial services accessible straight from a suitable crypto wallet.

What is the difference?

The distinction between trading cryptocurrency on a centralized and a decentralized exchange is as described in the following:

Execution:

DEX transactions are carried out automatically according to the criteria set by the smart contracts that enable the exchange. On the other hand, transactions made on a CEX are processed via the exchange’s systems. This system is responsible for matching identical purchase and sell orders.

Data Stored:

Transactions on the DEX are stored on the blockchain and could be read by anybody who understands how to access on-chain data. CEXs store & control all data that goes through their network and often charge third parties to access information.

Transaction fees:

DEXs operate on the blockchain, therefore transaction costs are often lower, and they are seen as a less expensive alternative. Centralized exchanges, on the other hand, are for-profit commercial organizations that often charge a fee for their services.

Making a market:

DEXs utilize Automated Market Maker protocols, which depend on a pool of tokens given by third parties in exchange for payment for their services. A market maker at a centralized exchange, on the other hand, is an institution with the responsibility of providing liquidity so that all orders that pass through the exchange may be executed rapidly.

Confidentiality:

Decentralized exchanges provide the users with a high level of privacy since their identities are normally encrypted inside the blockchain and then are confined to a digital wallet. Centralized exchanges, on the other hand, are required by law to collect and record the contact data of the clients they serve.

Why does DEX have a brighter future?

Decentralized cryptocurrency exchanges have arisen as part of the DeFi (decentralized finance ) movement. One of the core technologies underlying the present DeFi ecosystem is liquidity pools. They are required for automated market makers (AMM), borrow-lend protocols, yield farming, synthesized assets, on-chain insurance, and blockchain gaming.

Decentralized exchanges employ smart contracts & sophisticated market-making mechanisms to ensure that there is adequate liquidity to execute and fulfill all orders on time. Unlike CEXs, decentralized exchanges are peer-to-peer markets. Their services do not need regulatory compliance and do not keep customers’ data on their servers. It makes them a cheaper choice than CEXs, who normally demand a greater cost.

Asset prices on DEXs are determined by a pricing algorithm rather than a conventional order book, as seems to be the case on centralized exchanges. As decentralized exchanges mature and scalability difficulties are resolved, centralized exchanges will ultimately be supplanted by their decentralized equivalents.1inch, a prominent aggregator of decentralized protocols has secured $175 million in a capital round that the company refers to as a Series B investment in the year 2021. From May 2020 to April 2021, there were over two million Defi merchants. The foundation of the decentralized exchange has raised $100 million from institutional investors.

“DEXs and CEXs each have a distinct audience. However, DEX and the Defi sector seem to be the future.” according to Mikhail Karkhalev, a financial analyst at Capital.com.Because there is no participation of a third party, DEX enables the user to act as their bank. The user can trade, buy or sell his commodity and reap the advantages of his actions.

How is the CEX adapting?

Since the start of cryptocurrencies, centralized exchanges have emerged. The most prominent crypto exchanges are centralized and are recognized for their unparalleled simplicity of use, excellent user experience, and ability to trade tokens across all blockchains. However, their centralized design enables exchanges to keep complete control of their customers’ funds and necessitates Complicated KYC and AML processes that are still vulnerable to cyber-attacks.

Recently recorded that because of low trading volume across major centralized exchanges, Bitcoin has fallen below $46K.In a single day, $1.2 billion in Ether was taken from centralized exchanges, setting a new daily outflow record.

KAIDEX is the first cryptocurrency exchange solution that combines the simplicity of centralized exchanges with increased transparency of decentralized exchanges. It employs the innovative Dual Node technology created by KardiaChain (a blockchain network that facilitates the connection of many blockchains). This technology enables accessibility to ledgers of KardiaChain as well as other blockchain networks at the same time.

The CEX is evolving and adapting to the new crypto-currency environment as a result of the new technological advancement.

Conclusion:

Both of these crypto exchanges enable users to purchase and sell cryptocurrency, but there are disparities in essential factors including liquidity, security, & usability. CEXs give a simple and quick option to trade for newcomers wishing to enter the crypto market. DEXs, on the other hand, are better suited for professional ones who want total control over their digital money and privacy.