Cex vs Dex

Centralized and decentralized exchanges

Crypto Exchanges

Crypto exchanges are platforms where one can buy, sell, or trade cryptocurrencies for other cryptocurrencies or fiat. There are two types of exchanges: Centralized (CEX) and Decentralized (DEX).

What is a Centralized Exchange (CEX)?

A Centralized Exchange (CEX) is an exchange platform run by a private company and is subject to the rules and regulations of the jurisdictions in which it operates. Users can create an account, complete a Know Your Customer (KYC) process, connect their bank account to their exchange account, and begin trading. The exchange acts as a middleman for customers, adding fees to each buy, sell, or trade to generate profit. The cryptocurrency is stored on the centralized exchange, and users can exchange their cryptocurrency for fiat, withdraw the money back to their bank, usually after a waiting period. Centralized exchanges often offer additional services such as staking, limit orders, stop-limit orders, market orders, and other advanced trading tools.

How to Use a CEX

   
• Open an Account: Choose a centralized exchange like Coinbase, Binance, or Kraken, and create an account.
   
• Complete KYC: Finish the KYC process to verify your identity.
   
• Connect Bank Account: Link your bank account to the exchange to deposit fiat currency.
   
• Deposit and Trade: Deposit fiat to buy cryptocurrencies or digital assets offered by the exchange.
   
• Store Assets: Cryptocurrencies bought will be held on the exchange.
   
• Sell and Withdraw: To convert crypto to fiat, sell the assets on the exchange and withdraw the fiat back to your bank account, usually after a few days.

What is a Decentralized Exchange (DEX)?

A Decentralized Exchange (DEX) operates through community stakeholders who vote on decisions via a Decentralized Autonomous Organization (DAO). Users can connect a hot or cold wallet to the exchange and trade cryptocurrencies directly. The cryptocurrencies are stored in the user's wallet, and the user is responsible for controlling the assets. DEXs often offer services such as staking and creating liquidity pairs to host different cryptocurrencies on the exchange. Unlike CEXs, DEXs are not hosted in a specific country or region and do not follow the laws or regulations of any specific region, though countries can enact laws to ban the use of DEXs within their jurisdiction.

How to Use a DEX

   
• Connect Wallet: Connect a crypto wallet (hot or cold) to the decentralized exchange.
   
• Transfer Cryptocurrencies: Transfer cryptocurrencies to the wallet from centralized exchanges, or use financial technology companies like Moonpay or Transak to purchase a native gas coin for a specific blockchain.
   
• Load Wallet: Ensure the wallet is loaded with a blockchain's native coin.
   
• Trade Cryptocurrencies: Trade the native coin for other cryptocurrencies on the same blockchain, provided there are liquidity pools for the desired cryptocurrencies.
   
• Approve Transactions: For first-time trades, approve the use of the currency for trading by paying a gas fee.
   
• Trade and Confirm: After approval, freely trade the approved currencies. Trades are confirmed by validator nodes, and a gas fee is paid to the validators for their work.