Difference between Centralized Exchange (CEX) and Decentralized Exchange (DEX)
Today’s post is about to post basic knowledge on exchanges for those who are new to virtual assets (coins).
First of all, exchanges are divided into two main categories.
1. Centralization exchange
2. Decentralized exchange
Bithumb, Upbit, Coinone, Gate.io, Huobi! All famous exchanges belong to centralized (CEX) exchanges.
In addition, decentralized exchanges opposite to centralized exchanges include Uniswap, dYdx, 1inch, and Sushi Swap.
Centralized exchange
First, Centralization means that exchanges use third parties to complete transactions.
When we trade or store our cash assets, etc., we trade or store them through the bank we trust the most. And banks help customers conduct transactions and keep their assets safe. Similarly, centralized exchanges entrust investors’ digital assets (cryptocurrency) to help with trading and management.
These centralized exchanges do not require investors to create wallet addresses for transactions or manage keys, making them easily accessible even to early investors without knowledge of blockchain.
There are many trading participants as the entry barrier is low and anyone can trade virtual assets. In addition, there are many users and many traders, so buying and selling are frequent, and the transaction completion rate is high, and the transaction speed is fast because it does not go through processes such as propagation of node details and block generation and verification that occur on the blockchain network.
However, these centralized exchanges also have their drawbacks.
The downside of centralized exchanges that many people talk about is that the key (Data base) that can access the representative address where customers’ assets are stored is not safe from hacking.
Decentralized exchange
Decentralized exchange (DEX) may still be an unfamiliar name to many people. As the name implies, a decentralized exchange is an exchange that does not have a trading intermediary, supports peer-to-peer (P2P) transactions, and allows individual to individual transactions using smart contracts.
Decentralized exchanges set a specific price using an order book method similar to a centralized exchange and a liquidity pool pricing method. In addition, through the swap transaction method, transactions between traders can be processed immediately.
The downside of decentralized exchanges is that the trading process is complicated and difficult for novice cryptocurrency investors to use. In addition, since decentralized exchanges do not support the transaction completion process, there is the hassle of not only completing the transaction process directly, but also remembering the private key.
However, many people still choose centralized exchanges.
As seen above, centralized or decentralized exchanges clearly have their own strengths and weaknesses. And everyone has the right to choose the exchange that best suits them based on its pros and cons.
However, we also need to consider why people are still unfamiliar with decentralized exchanges and choose centralized exchanges. People say that decentralized exchanges are safer than centralized exchanges in terms of hacking and security.
And it is said that centralized exchanges are not safe from hacking.
Of course, centralized exchanges store and manage customers’ assets like banks, so if they are hacked, the damage can be great. But if that’s a downside and I’m reluctant to use a centralized exchange, how have I been using commercial banks so far?
Numerous banks around the world that we use store and manage customer assets at once, just like centralized exchanges. Still, people trust and entrust their assets to the bank because they trust the bank that much.
If so, it cannot be said that security issues are a disadvantage of centralized exchanges.
If the exchange chooses a trustworthy place just like commercial banks, you will be able to trust and entrust your digital assets (cryptocurrency).
It is an old saying that centralized exchanges are not safe from hacking.
Have you ever heard of cold wallets and hot wallets while using an exchange?
What is Cold Wallet? It is a type of cryptocurrency wallet that can store a private key that can prove ownership of a cryptocurrency.
Cold wallets are characterized by being made as a device disconnected from the Internet, so security is relatively high, allowing various cryptocurrencies to be stored in one place and convenient.
Conversely, a hot wallet is a cryptocurrency wallet that is connected online and allows exchange of transaction information.
Unlike cold wallets, it is connected to the Internet, so deposits and withdrawals are convenient, and it is mainly used when trading coins.
In a typical centralized exchange, when a customer’s assets are deposited, they are stored in a hot wallet and a cold wallet.
When a customer’s asset is deposited, about 20% of token cans are stored in a hot wallet and 80% in a cold wallet, and security is thorough and safe because there are more than two administrators who can open the cold wallet.
This is a security process that prioritizes the protection of the customer’s assets. When the transaction volume is high, the process of moving assets from the cold wallet to the hot wallet is performed, so the speed of deposit and withdrawal can sometimes be slow. However, by paying much attention to safety, the anxiety about hacking, which is the biggest drawback of centralized exchanges, has been resolved.
The slogan of the token can has always emphasized ‘trust’ without any change over the past five years.
True to its name, Tokencan has not suffered from a single hacking in the past five years, and has maintained its essence as a centralized exchange based on trust from customers.
You just need to remember this. Tokencan is like the bank you are most familiar with and trustworthy.
Still, will you choose a place where the transaction process is complicated with unnecessary worries, leaving safety and convenience behind? Also, would you choose any bank just because it offers high interest rates and a lot of benefits?
Choosing Tokencan, a global virtual asset exchange that has been proven for 5 years, will be the smartest choice for many people who have invested in virtual assets.
Tokencan Official Website:
https://www.tokencan.com/en_US
Tokencan Official Community:
https://t.me/Tokencan_EN
