Centralized exchanges vs Decentralized exchanges
Centralized custodial cryptocurrency exchanges (CEXes) are one of the most popular and accessible platforms to exchange cryptocurrencies for traders and investors. But despite the popularity of CEXes, there have been consistent security failures, like the recent Liquid hack, which resulted in over $90 million worth of cryptocurrencies stolen.
Built on an ethos of decentralization, decentralized exchanges (DEXes) are looking to change that. Uniswap, one of the largest decentralized exchanges on Ethereum, promises greater security, transparency, and accessibility on its platform. The growth and popularity of decentralized finance (DeFi) in 2020 helped establish decentralized exchanges, but what are the main differences, and are decentralized exchanges any better?
Centralized exchanges act as a third party between a buyer and a seller. Your data is stored on the exchange and they are responsible for protecting user data and transaction information and controlling the platform in general.
A decentralized cryptocurrency exchange (DEX) is a platform operated without a central authority or corporation. In other words, it does not use a third party to hold your crypto assets. Rather, you keep your crypto in your own private wallet, and trades are completed peer-to-peer using an automated process.
There are several benefits when using this type of exchange:
🔹More trust, less hacking: Decentralized exchanges form a good alternative for investors concerned over hacking risk since the users of decentralized exchanges do not need to transfer their assets to a third party that may get hacked.
🔹Anonymity: Unlike centralized cryptocurrency exchanges which require customers to fill out certain details including KYC or know-your-customer details while opening an account, decentralized exchanges are anonymous and offer more privacy.
🔹Less price manipulation or fake trading volume
🔹Stable hosting: Generally, nodes used to run the exchange are decentralized, thus limiting or eliminating server downtime.
Although the lion’s share of the DeFi ecosystem still lives on Ethereum — and ETH remains the de facto reserve currency — users are increasingly looking towards other networks to interact with and create protocols and decentralized applications related to borrowing, lending, staking, and more. The future looks bright and the future looks cross-chain. We at Mizar believe in the innovation that is happening within DeFi and our mission is to make DeFi more accessible and usable for everyone.
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