Quick guide to centralized versus decentralized exchanges
How are Coinbase and Binance different to Uniswap and SushiSwap?
Originally, the only way to buy and sell cryptocurrency was through a centralized exchange. Then decentralized exchanges appeared and gained massive popularity.
What’s the difference between these two types of exchanges? Which of them is better suited to fulfill the needs of demanding crypto investors?
Centralized exchanges: the traditional way of trading crypto
Centralized exchanges, such as Binance and Coinbase, are still the most popular way of trading crypto. This is because they offer some key advantages to their customers.
First, they are operated by companies which have to comply with regulations, just like traditional financial institutions. As a result, they are considered to be secure. Even if a hacker manages to steal a user’s funds, the company will compensate them.
Secondly, they fully support fiat currencies. This makes them a great gateway for newcomers to the blockchain ecosystem, enabling them to buy digital currencies with their dollars and euros, effortlessly.
So why have decentralized exchanges been gaining traction? Because centralized exchanges have their share of weaknesses too.
These verifications take a lot of time and effort. They require you to disclose a lot of private information, as well as provide scans of your ID. It’s not only complicated, it also completely removes the anonymous aspect of crypto use. Furthermore, exchanges like Binance and Coinbase are known to share user data with third parties like the IRS.
Decentralized exchanges: the future of crypto trading?
Decentralized exchanges (DEX) were created in order to solve all the problems of centralized exchanges. DEXs are not operated by centralized companies — instead, trading is fully powered by smart contract technology.
The main advantage of decentralized exchanges like Uniswap and SushiSwap is the fact that you can start buying and selling crypto almost instantly. Since most DEXs are built on the Ethereum network, all you need to begin is an ETH wallet.
After you connect your wallet to the exchange, you can start trading immediately. There is no registration process and no KYC/AML verification. You don’t have to disclose any private information or send scans of your documents anywhere.
In other words, with centralized exchanges, you need the government’s permission to trade crypto, while decentralized exchanges allow you to start trading crypto immediately with no need to go through a lengthy verification process.
Another major advantage of DEXs is the fact that they allow you to buy and sell a larger selection of different cryptocurrencies, as opposed to centralized exchanges which limit the number of coins and tokens listed. Decentralized exchanges do this by allowing blockchain developers to list their projects directly on the platform.
In other words, DEXs empower you to invest in thousands of undervalued, promising tokens that are not supported on centralized exchanges such as Binance or Coinbase.
Decentralized exchanges have only one disadvantage: they don’t support fiat currencies like USD or EUR. Since most DEXs are Ethereum-based, you need to already own some ETH in order to use them.
Which type of exchange is better?
Centralized and decentralized exchanges aren’t really mutually exclusive — they serve different purposes, so the correct choice for you depends on what you are trying to achieve.
Buying crypto with fiat currency is the one thing at which centralized exchanges excel, while DEXs are not suitable for this at all.
But if you already own some cryptocurrency, and you want to trade or invest it in innovative and/or undervalued tokens, decentralized exchanges will be much better for you.
Most importantly, decentralized exchanges truly respect your privacy and allow you to trade thousands of different assets. If you’d like to invest in an innovative DeFi token such as Kirobo (KIRO), the best way to do that is through a decentralized exchange like Uniswap.
Buying tokens on Uniswap is easy — you just have to connect your Ethereum wallet to Uniswap and pay for your purchase with ETH. After you’ve purchased KIRO, you can stake it or use it at a later time to make ultra-secure, reversible, and password-protected cryptocurrency transactions with reduced cost.
You don’t really have to choose between decentralized and centralized exchanges, because there’s no reason that you’d only be able to use one of them. Most blockchain investors use both centralized exchanges and DEXs.
However, the different types of platform serve different purposes, so it’s important to pick the right tool for what you are trying to do.
If all you want to do is buy some traditional cryptocurrency like Bitcoin with a credit card, exchanges like Binance or Coinbase will be enough for you. But if you want to take your crypto experience to the next level and get investing in promising projects (like Kirobo), decentralized exchanges like Uniswap would be a much better choice.
The article is not investment advice and must be used for informational purposes only. It is very important to do your own analysis. You can use KIRO for utility purposes only. Israeli, Canadian, and USA citizens cannot buy KIRO.
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