What is decentralized exchange?
Decentralized exchange is a essentially an open source program (in contrast with centralized blackbox) which runs on top of decentralized network. They generally run at smart contract that is on a blockchain which anyone can review. As an example, take a look how DEX.io decentralized exchange looks like.
The entire trading logic is in there which guards user funds and does not let anyone take them freely.The entire network executes it all over the world and there is no easy way to attack this.
It’s exactly different from the centralized exchange. Generally speaking, we could see in these points:
Data storage method
All the data is recorded on the blockchain in Dex(decentralized exchange), whilst Cex(centralized exchange) record the data on a centralized server.It guarantees that valid trades of Dex are recorded on the blockchain.
Financial security
Cex is in full control of your money, and it may easily change the rules that run your funds.
But in Dex, the funds of users are auditable. All transactions are based on a trustless mechanism. Money is either in user’s wallet or locked in contract and they cannot be withdrawn by anyone else except owner himself.
Transaction speed
Key benefit of the Cex is the speed of data processing. Orders are matched and executed with a very high speed.
But as so far, when users of Dex submit transaction, there is a lot of room for speed improvement because the data still need to be recorded on the blockchain and it may take a while (network is busy, for example).
Transaction depth
The depth of the orderbook is not a problem for Cex, due to its transaction speed and user volume.
However, this is one of the most criticized features of Dex. Its trading liquidity is poor, and the depth of the order is not enough to attract users for trading. So many of Dexes do not set market order function yet for now.
There are many more details we can go through while discussing decentralized exchanges.We could talk about it in DEX.io communities.
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