An Introduction to Decentralized Exchanges, Centralized Exchanges and Wallets

A centralized exchange (or CEX), e.g. Coinbase or Binance, is a company that facilitates the buying and selling of assets. A CEX takes custody of funds and can shape — and reshape — the rules that govern the platform. Too often in crypto, they’ve proven vulnerable to hacks and theft.

The Pros and Cons of Centralized Exchanges

In contrast, decentralized exchanges ( or DEX), — for example, Uniswap or Sushiswap — are autonomous decentralized applications (Dapps) that enable buyers and sellers to exchange their cryptocurrency without losing custody of their funds. They operate 24/7 and remove the need to trust a third party to manage trades.

Pros and Cons of Decentralized Exchanges

What are wallets?

Broadly speaking, a crypto wallet is a digital wallet that allows users to store, manage, and trade their cryptocurrencies. It is your identity when you buy Bitcoin, Eth or any other cryptocurrency. Your its address and what you’re buying and selling is recorded on the blockchain.

A crypto wallet also stores the public and/or private keys for cryptocurrency transactions. A public key is like your bank account number. You can share it with other people or institutions, so they can send money to you or take money from your account when you authorize it. These people usually view your public keys as a wallet address — a hashed, or more compressed, version of that public key.

A private key, on the other hand, is like your bank account password or the PIN to your debit card. Anyone with access to your private key, will have access to all of your assets stored in your wallet, so it’s critical that you keep your private key a secret.

As a purely digital currency, cryptocurrency isn’t directly held within your wallet; instead, the wallet stores information about your public and private keys, which amount to your ownership stake of the cryptocurrency. Using these keys, you can send or receive cryptocurrency while keeping your private key encrypted.

Disclaimer: This content is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice.