Centralized and Decentralized exchanges
The tradeoffs with centralized and decentralized exchanges.
There are advantages and disadvantages to both, which will be discussed below.
Centralized Exchanges
Centralized Exchanges tend to be most users’ first experience in the world of cryptocurrencies. These CEX’s are relatively familiar household names (e.g. Coinbase, Robinhood) and are most often accessed via usernames and passwords (which can be restored or recovered if lost). Most also have customer support representatives that can help with any questions. Many will even accept credit cards or bank transfers to use fiat to purchase Crypto. Most of these exchanges require some form of “KYC” (i.e., Know Your Customer) requirements to adhere to Anti-Money Laundering laws, and, being private companies, they also report to Government tax agencies.
A major consideration one must take when dealing with centralized exchanges is that they actually maintain custody of any crypto assets you purchase and fully maintain the right to deny you access to your assets at any time, for any reason. Your account can also be suspended at any time for any activity they deem suspicious. There is an old adage in cryptocurrency culture that states, “Not your keys, not your Crypto”, meaning if you do not own the private keys to your own “self-custody” wallet, you don’t actually “own” your crypto at all.
Decentralized Exchanges
Decentralized Exchanges are not run by any one central company or government. They are often termed as “Market Makers” because their prices are set by oracles or arbitrage bots. DEX’s can be complicated and require users to be technologically savvy, not to mention mindful of their own security, before interacting with them. Users should learn fully about DEX’s and how to interact with them in order to be comfortable self-custodying their own coins in a DeFi wallet. DEXs, on the whole, offer a more immutable experience in transacting with many different types of cryptocurrency and blockchains; However, remember, it is the sole responsibility of the user to maintain the security of their assets, as there is typically no customer support nor methods of reversing mistake transactions.
In sum, both CEX’s and DEX’s have their positives and negatives. If one wishes to enter into buying and selling cryptocurrency, it is recommended that one starts with small amounts and never invest more than you are willing to lose.
