#CEXvsDEX101

Exchanges are the places where you can buy or sell cryptocurrencies. Whether you are a beginner or an experienced trader, you have various options. Most cryptocurrency trading takes place on these digital exchanges. Binance, Coinbase, Uniswap, and others are likely familiar names. Most are centralized and operate under the same business model as traditional institutions. However, a growing number of people are opting for decentralization and are reconsidering how exchanges operate. The advantages and disadvantages of each type are discussed here.

In recent years, decentralized exchanges (DEX) have emerged to challenge existing centralized exchanges (CEX). In summary, DEX aim to reduce transaction fees, allow users to directly hold their assets, and circumvent some regulatory restrictions. However, on the other hand, liquidity providers may be exposed to a type of risk known as "impermanent loss" when providing liquidity in pools.

CEX offer a range of advantages. They typically provide greater liquidity and regulatory protections, aspects particularly crucial for institutional clients.

Centralized Exchanges (CEX)

Binance, Coinbase, Kraken, and Huobi are examples of centralized exchanges equipped with their own order book. Each order is recorded and approved in this book. Data is shared internally via dedicated servers and subjected to centralized security protocols to ensure accuracy. CEX, for the most part, are regulated and have extensive integrated "know-your-customer" regulations. At the same time, centralized exchanges vigorously pursue scammers in accordance with current regulations to prevent money laundering. Beginners prefer this type of exchange because the centralized structure offers an intuitive interface that greatly simplifies the purchase and management of digital currencies.