A Centralized Exchange (CEX) and a Decentralized Exchange (DEX) differ primarily in how they operate and who controls the funds.
CEXs, like Binance or Coinbase, are managed by companies that act as intermediaries between buyers and sellers. Users deposit funds into the exchange, which holds custody of those assets. CEXs typically offer high liquidity, fast transaction speeds, and user-friendly interfaces. However, they require users to go through KYC (Know Your Customer) procedures and trust the platform with their funds, making them vulnerable to hacks or regulatory shutdowns.
DEXs, such as Uniswap or PancakeSwap, operate without intermediaries. Trades happen directly between users through smart contracts on the blockchain. Users maintain control of their private keys and funds, enhancing security and privacy. DEXs are permissionless and do not require KYC. However, they may have lower liquidity, higher fees during network congestion, and a steeper learning curve for beginners.
In summary, CEXs offer convenience and speed but sacrifice control and privacy, while DEXs prioritize user autonomy and decentralization at the cost of usability and sometimes performance. The choice depends on the user's priorities—security and privacy or convenience and liquidity.
