You can trade cryptoassets on different platforms, but more often they use centralized (CEX) or decentralized (DEX) cryptocurrency exchanges. The first type is more user-friendly in terms of interface, intuitive, has a wide range of functionality, tools, and a choice of cryptoassets, and the latter is completely anonymous and allows transactions directly between participants, bypassing intermediaries. Each of the options has its own pros and cons, features, and differences. Let’s consider them in this article so that any investor or novice trader can analyze all the information, as well as conclude where it will be more convenient, easier, and safer for him to trade cryptoassets.
Beginning of work
Centralized exchanges. To start trading cryptoassets on CEX, you need to go through a simple and quick registration procedure using e-mail. After verifying the e-mail, the user gets access to his personal account, as well as to the trading terminal. Most CEX do not require KYC (identification procedure) from the start. What is noteworthy is that wallets for all crypto-assets that have passed the listing (addition) on the exchange are set up automatically and the user does not need to pay special attention to this or spend time on this. Private keys are held by the exchange, so there is no need to worry about losing them. Also, you do not need to remember and store the seed phrase separately. But, when connecting 2FA (two-factor authentication – a security component mandatory for every trader), you must save the access recovery key explicitly or in QR code format. It may be needed in case of transferring an application for generating one-time passwords to another mobile device (most often Google Authenticator is used for such purposes).
Decentralized exchanges. In order to start trading cryptocurrencies through DEX, you must first decide on the format for storing assets. Since DEX does not store assets on their side but only provides a trading platform, the choice of a cold wallet form factor for storage falls on the shoulders of the asset owner and is his area of responsibility. You can store cryptoassets on hardware wallets such as Ledger, Trezor, etc., with licensed cold storage custodians (Xapo, etc.), or on non-custodial mobile or desktop wallets. To trade on DEX, you need to create a wallet for each cryptoasset separately and confirm ownership by uploading a storage file with a password (Keystore + password), entering a mnemonic phrase, or a private (private) key. If you are using a hardware wallet, you need to activate its use by entering the device PIN.
Making a deposit (replenishing wallets)
Centralized exchanges. The balance of any wallet is replenished using a public address. To do this, it is convenient to use a QR code or copy the wallet address to the buffer (Cntr + C -> Cntr + V). You can start both cryptocurrencies and fiat currencies (USD, EUR, etc.) since many CEXs have payment gateways configured that allow accepting Visa and Mastercard bank cards (Binance, Huobi Global, etc.).
Decentralized exchanges. To start trading, you need to unlock the wallet with the desired asset, and then deposit funds into the smart contract from the wallet account.
Choosing assets for trading
Centralized exchanges. They offer a huge selection of trading instruments and currency pairs. Trades can be paired with BTC, ETH, as well as other top cryptocurrencies, or paired with any stablecoins, with which you can hedge risks in times of high market volatility.
Decentralized exchanges. They offer a limited selection of instruments and currency pairs. Many DEXs only allow trading in assets issued on the basis of a specific blockchain (for example, ERC-20 tokens based on the Ethereum blockchain) or only allow peer-to-peer transactions. In order to link assets on different blockchains, DEX offers to trade only in tandem with the exchange token, which is inconvenient (BNB, etc.).
Specificity of conducting trading operations
Centralized exchanges. They offer a wide range of orders: limit, market, pending, stop-loss, take-profit, scalable, passive, etc. Traders do not need to be constantly online when making deals. It is enough to place orders of a certain type, and they will be executed automatically. The CEX user has access to margin trading using leverage. CEX, unlike DEX, provides and maintains high liquidity. And even new DEX platforms, such as UniSwap, are not yet competitors in this, one of the most important for the exchange, indicator. CEX also offers the creation of additional accounts (sub-accounts) and API keys to transfer their assets to trust. At the same time, the owner of the assets independently determines and restricts the rights for proxies or companies, making it impossible to withdraw assets without his knowledge.
Decentralized exchanges. They offer trading only with limited orders. Other types of orders such as stop loss or take profit are not available like CEX. Both parties must be online to fully conduct and finalize a transaction. Margin trading is not available, as is the transfer of assets to trust. 2FA cannot be used. Traders have to put up with a simpler and less convenient UI (user interface), as well as wait longer than CEX for their support requests to be fulfilled (this is not the case with all DEXs, but many).
Let the user make their own choice in favor of CEX or DEX. Let’s just summarize the main differences.
- simple and intuitive to use, user-friendly UI, suitable for investors and most traders;
- a large selection of trading instruments and order types;
- high liquidity;
- the ability to purchase cryptoassets for fiat currencies (deposit, trade, and withdrawal);
- the ability to transfer their assets to trust.
- difficult to understand and use for a novice investor and inexperienced trader;
- it is impossible to use fiat currencies;
- a limited selection of trading instruments, currency pairs, and order types;
- low liquidity;
- it is impossible to create API keys and transfer your assets to the trust management of a specialized company.