On this page
- How to buy and trade cryptocurrencies
- Classic exchange process
- Peer to peer crypto exchanges
- Brokers and CFDs trading
- Derivatives exchanges
- Types of cryptocurrency exchanges
- Centralized exchanges
- Decentralized exchanges
- Hybrid cryptocurrency exchanges
- Decentralized exchanges vs centralized exchanges
- Regulations and licensing for DEX and CEX
- Conclution
Cryptocurrencies are quite a new term for many people. The first to see the light of day was Bitcoin in January 2009, so as you can see, the crypto industry is still in its infancy.
One of the biggest businesses in the crypto sphere is to own cryptocurrency exchange with significant profits daily. And the new concepts such as decentralized exchanges or derivate exchanges arise almost every day.
In this article, we will focus on the types of cryptocurrency exchanges, trying to compare decentralized exchanges vs centralized ones and make things easier for you to understand the differences.
How to buy and trade cryptocurrencies
Traders want to buy cryptocurrencies and trade them with each other. This is why crypto exchanges are in such a need in this industry. They allow them to buy, sell and trade their cryptocurrencies instantly, some of them serve as the fiat gateways as well, so you can even use your bank account or credit card to purchase some cryptocurrency assets.
There are various approaches to the crypto-exchange business. Some exchanges focus on ease for the customer, others offer low trading fees, some try to educate their customers from the very beginning, and on the other hand, there exist those who are oriented on the professional traders.
Let’s cover the ways, how to purchase and trade cryptocurrencies. You have several options, how to do that.
1. Classic exchange process
The classic process of cryptocurrency exchanges is focused on trading similar to a stock exchange. With your fiat money or another crypto, you can exchange your assets by placing a limit order that would go to an orderbook and wait there until matched or by placing a market order that would be instantly matched with buyers and sellers requests already available in the exchange's depth of market (DOM).
2. Peer to peer crypto exchanges
This type of exchange is not limited to cryptocurrencies, p2p exchanges are very popular in the traditional markets as well. Its representatives are Over-the-counter desks (OTC), where you buy or sell an asset from some other individuals or companies, but confidentially. There is no order book and no direct effect on the price of the underlying asset. A typical example in the crypto sphere is the website LocalBitcoins.com, where supply meets demand in the meaning, they trade peer to peer. Mostly without a middleman, but some OTC trading desks might be used as well, where they charge fees for the mediation.OTC serves primarily for large amounts of crypto, which might have affected the price of the traded asset. Typically, it is used by large venture capital companies, hedge funds, and last but not least, for the cryptocurrency miners.
3. Brokers and CFDs trading
By using a broker, buyers & sellers can find the counterparty for their trade, which can also be the broker himself. The middlemen (broker) will take a fee of the trade but brings both parties’ safety and security. A broker can enable users to utilize CFD trading as well, with which you can trade almost all assets from stocks to cryptocurrencies. In CFD trading, no party owns the physical asset in contrast with the classic exchange process.
4. Derivatives exchanges
The last opportunity is to use derivatives exchanges. So what is derivates exchange and what are the advantages of its usage? In the derivatives market, you are trading the underlying asset price, so you can use various types of benefits to maximize your profit if traded properly and successfully. One of the biggest advantages of derivates exchnages is the high leverage trading with instruments like futures or perpetual swaps.
Types of cryptocurrency exchanges
Centralized exchanges
CEXes are most known and traditional in the crypto sphere. They are governed by a company that offers the options of both crypto-to-crypto trading and fiat-to-crypto gateway.
CEX is a place, where buyers meet sellers on some centralized platform in the meaning that someone handles your crypto and is responsible for it.
You can use the order books for your trades and in some advanced exchanges even some technical analysis tools.
The biggest advantages are that CEX is easy to use and has great UI and UX, which go along with the quick response. In some of them, you simply register with your email, write down your password and you can trade.
You can be sure, that the biggest exchanges have not only a great reputation but high trade volumes and liquidity, so the trading spread is not as big as in some other types we will talk about in the next chapters. Some trading platforms such as Stormgain or XCOEX go even further in this and offer liquidity aggregation, a process that gathers buy and sell orders from different sources and, as a result, provides traders with the prices close to market average with minimal spread.
Here you can read more about liquidity aggregation, and explore the product dedicated for this purpose.
Customer support, various trading pairs, and fiat gateways are often offered by CEXes, and most of the time you can benefit from additional services such as staking, savings opportunities, or IEOs (Initial exchange offers). They also add services known from DeFi. Some of you might ask, what is DeFi in crypto or what is decentralized finance? In a simple way, those are decentralized instruments that you might know from the banking sector such as lending or borrowing of crypto, but without a middleman.
On the other hand, while using CEX, you aren’t the owner of the private keys, so there is still a slight chance that CEX could be hacked as it happened with Mt. Gox, HitBTC, or Coincheck. Some people feel uncomfortable sharing their private data in the KYC process as well, so this might be a barrier for a few people.
The most popular centralized exchanges are Binance, Coinbase and Huobi.
Decentralized exchanges
DEX is an alternative to CEX without a central point of failure, no company is in charge of the assets. In comparison with traditional CEX, the transactions and trades are automated by using smart contracts and decentralized applications.
This way is much more secure because there is no possibility of a security breach if the smart contract is well written of course.
DEX is simply just a service platform, which connects buyer and seller, who wants to exchange their tokens.
Because the most advanced blockchain with the largest number of tokens (ERC-20 tokens) is Ethereum, most of DEXes operate using Ethereum and its smart contracts, most of them can't even handle Bitcoin for trading. This might be upgraded by arriving on decentralized finances (DeFi) on an interoperable platform such as Polkadot and Cosmos. With their usage, the limits for trading will be much lower.
Because no company is responsible for the run of DEX, it's harder for governments and regulators to shut them down. But the price for decentralization is on most DEXes low trading volume, small liquidity, lower speed, and poorer UI which makes them harder to use.
Some DEXes are focused merely on experienced users. You can’t contact customer support for help on DEX and they don’t provide a fiat-gateway as CEX does.
The most known decentralized exchanges are Binance DEX and Uniswap.
Hybrid cryptocurrency exchanges
What is hybrid cryptocurrency exchange? Simply it’s the kind which is taking advantage of each CEX and DEX. It is the combination of fast transaction speed you can find in centralized platforms and security assurance by still holding the private keys.
Hybrid types are a new generation of the crypto trading marketplace, but still “under development”. The most popular hybrid types are Nash exchange and Qurrex exchange.
Decentralized exchanges vs centralized exchanges
Let’s compare the centralized and decentralized exchanges as the result will be individual for each one of you. For better understanding, we used the comparison table.
Centralized vs decentralized exchanges comparison table
| Centralized exchange (CEX) | Decentralized exchange (DEX) | Hybrid exchange (HEX) |
| UI & UX | Easy to use | Hard to use | Easy to use |
| Matching speed | Very fast | Slow | Fast |
| Custody | Users trust the CEX | Users own their funds | Users own their funds |
| Trading volume | High | Low | Low |
| Liquidity | High | Low | Low |
| Features | Unlimited | Limited | Limited |
| Fiat gateway | Yes | No | Yes |
A guide to decentralized and centralized exchanges
Regulations and licensing for DEX and CEX
Most CEXes are licensed and regulated by the government. In some jurisdictions, crypto exchanges can be banned – it already happened in China, South Korea, India, or Russia so for CEX is better to comply with the rules.
Decentralized exchanges have no intervention from government and regulations. Simply, they can’t be shut down. That is their biggest advantage, which brings various limitations in it as well, customer support is not on their side.
Conclusion
It’s up to you to decide, which type of cryptocurrency exchange will solve the best for your needs. If you are going to purchase your crypto with fiat, you will need to use CEX or HEX. The same thing is when you desire to trade many kinds of different altcoins because DEX is mostly limited to ERC-20 tokens or some limited number of cryptocurrencies.
Traders who want to handle their taxes and statistics about all trades can use some centralized exchanges that can easily help with that.
DEXes and hybrid exchanges are rather focused on more experienced users, who use solely their hardware wallets and want to have every Satoshi under their full control. But they sacrifice some other qualities provided by centralized exchanges. User experience, high trading volume and liquidity, as well as additional services like Initial Exchange Offerings (IEO), DeFi products, and so on.
In conclusion, if you choose some prestigious and well secured CEX, you can even earn more crypto by using their features such as staking or lending so your crypto actually works for you even when you sleep – and that counts!
Get started with your WL Global experience by exploring our portfolio of solutions
Starting Crypto Exchange Business 101
Read more
FAQs
In short, decentralized exchanges offer lower transaction fees, allow the user to hold their own assets, and avoid a few regulatory burdens. On the other hand, centralized exchanges offer faster transactions, ease of use, high liquidity, and more.
What is the difference between decentralized and centralized crypto exchanges? ›
In short, decentralized exchanges offer lower transaction fees, allow the user to hold their own assets, and avoid a few regulatory burdens. On the other hand, centralized exchanges offer faster transactions, ease of use, high liquidity, and more.
What are the 3 main types of crypto exchanges? ›
Like stock exchanges, crypto traders can buy, sell, and convert cryptocurrencies on crypto exchanges. There are currently three types of cryptocurrency exchanges—centralised exchanges (CEXs), decentralised exchanges (DEX) and hybrid exchanges (HEX).
Is Coinbase centralized or decentralized? ›
Coinbase is a centralized exchange. It's headquartered in San Francisco, but it considers itself to be a "remote first" company and 95% of its employees have had the option to work from home since 2021. 5 Coinbase monitors transactions and secures assets on your behalf.
What crypto exchanges are centralized? ›
Binance, Coinbase and Kraken are prime examples of centralized exchanges. Novice investors tend to flock to these options because they offer 1) customer support, 2) the ability to redress errors or hacks,and 3) a level of investor protection that decentralized exchanges simply cannot.
What are examples of Centralised and Decentralised cryptocurrency? ›
Examples of centralized platforms include Coinbase, Binance, and Kraken. A decentralized crypto exchange, or DEX, is a protocol for swapping coins that doesn't take control over your funds. DEXes run entirely on computer scripts and decentralized governance. Decisions are not made by companies and their executives.
What are the 4 types of cryptocurrency? ›
Q #1) What are the four types of cryptocurrency? Answer: The four major types include utility, payment, security, and stablecoins. There also are DeFi tokens, NFTs, and asset-backed tokens. Of all cryptocurrencies, the most common are utility and payment tokens.
What are the two types of crypto exchanges? ›
There are two main types of exchanges: centralized and decentralized.
Which crypto is fully decentralized? ›
Bitcoin (BTC)
In theory, anyone can become a Bitcoin miner. Furthermore, Bitcoin has a decentralised development community with a transparent process for making changes to the protocol. This ensures that decisions are made through consensus and are not subject to the influence of a single individual or group.
What is the biggest decentralized exchange? ›
Uniswap – This is the largest decentralized exchange on the Ethereum network. Uniswap is often the go-to place for newly launched ERC-20 tokens, so this is a great option for investing in post-ICO projects.
Our Top Picks for the Best Crypto Exchanges of June 2023
- Coinbase - Best for Beginners.
- Bitstamp - Best for Low Fees.
- Kraken - Best for Security.
- Pionex.US - Best for Automated Trading.
- Bisq - Best Decentralized Exchange.
- Public - Best $0 Commission Platform.
Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network that securely executes and verifies application code, called smart contracts.
Is Ethereum centralized or decentralized? ›
Most Of Ethereum Active Nodes Are Hosted On Centralized Servers.
Are all crypto coins decentralized? ›
Not all cryptocurrencies are decentralized, although the most popular ones like Bitcoin and Ethereum's ETHER are. Unlike centralized currencies, decentralized cryptocurrencies are not regulated by central banks, but by their programming code and the monetary policies are regulated by their respective communities.
What is an example of a centralized exchange? ›
A centralized exchange (CEX) is a business that specializes in helping make transactions happen between two parties. In traditional finance, all businesses are centralized exchanges, for example banks (Goldman Sachs), stock trading apps (Robinhood), and payment processors (Visa).
How many decentralized exchanges are there? ›
List of Decentralized Exchanges (DEXs) Discover 119 Decentralized Exchanges (DEXs) across the most popular web3 ecosystems with Alchemy's Dapp Store. Also explore related collections including Crypto Exchanges, Decentralized Derivatives, Decentralized Options. Is your project missing from the list?
Is Kucoin a centralized exchange? ›
Centralized cryptocurrency exchange serving international markets.
Is Bitcoin fully decentralised? ›
In Bitcoin's case, blockchain is decentralized so that no single person or group has control—instead, all users collectively retain control. Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, transactions are permanently recorded and viewable to anyone.
Which exchanges are decentralised? ›
Here's a list of the TOP decentralized exchanges:
- Dexilon – Best DEX for Crypto Derivatives.
- Bisq – Best DEX for Smaller Trades.
- dYdX – Best Exchange for Margin Trading.
- PancakeSwap – Best DEX for New Crypto Assets.
- Uniswap – Largest Decentralized Exchange.
- Kine Protocol – Best Exchange for Low Prices.
Bitcoin is decentralized thus: Bitcoin does not have a central authority. The bitcoin network is peer-to-peer, without central servers. The network also has no central storage; the bitcoin ledger is distributed.
The 5 Pillars of Enterprise Blockchain Solution design:
- Permissioned/Private. Writing records is exclusive to members, third parties can be granted read access, with the general public excluded. ...
- Decentralized/P2P. ...
- Immutability & Data Integrity. ...
- Scalability. ...
- Security.
There are nearly 600 cryptocurrency exchanges worldwide inviting investors to trade bitcoin, ethereum and other digital assets. But costs, quality and safety vary widely.
What is the most common type of cryptocurrency? ›
The most popular ones include Bitcoin, Ethereum, Tether, Cardano, and more. There are different categories of crypto including mining-based coins, stablecoins, memecoins, and security tokens.
What are the top 6 cryptocurrencies? ›
What Are Cryptocurrencies?
- Bitcoin (BTC) Market cap: £412.4 billion. ...
- Ethereum (ETH) Market cap: £178.1 billion. ...
- Tether (USDT) Market cap: £66.9 billion. ...
- Binance Coin (BNB) Market cap: £32.5 billion. ...
- US Dollar Coin (USDC) Market cap: £23.0 billion. ...
- XRP (XRP) Market cap: £21.93 billion. ...
- Cardano (ADA) ...
- Dogecoin (DOGE)
List of Different Types of Cryptocurrencies
- Bitcoin. Ticker Symbol: BTC. Market Cap: Over $435 Billion. ...
- Ethereum. Ticker: ETH. Market Cap: $190 Billion. ...
- Binance Coin (BNB) Ticker: BNB. Market Cap: Over $47 Billion. ...
- Tether. Ticker: USDT. ...
- Cardano. Ticker: ADA. ...
- Polkadot. Ticker: DOT. ...
- Dai. Ticker: DAI. ...
- Tron. Ticker: TRX.
There are four main types of blockchain networks: public blockchains, private blockchains, consortium blockchains and hybrid blockchains. Each one of these platforms has its benefits, drawbacks and ideal uses.
What are the two biggest crypto exchanges? ›
SEC Sues Coinbase and Binance, World's Two Largest Cryptocurrency Exchanges. Coinbase and Binance face a slew of allegations of violating U.S. securities law. Leading cryptocurrency exchanges Coinbase and Binance are no strangers to controversy, as they tower over the battered crypto sector.
What is the difference between crypto trading and crypto exchange? ›
In contrast to a crypto broker, a cryptocurrency exchange provides an online platform for buyers and sellers who trade cryptocurrencies for other digital currencies or fiat currencies with each other, not a broker, based on current market prices.
What is the difference between crypto exchanges? ›
At a glance: Global Bitcoin price differences exist across exchanges because there is no standard pricing protocol for digital assets. Different transaction fees that crypto exchanges charge investors, fluctuations in trading volumes, and different depths of liquidity affect the various exchange prices.
Which crypto is not decentralized? ›
As it often happens, theory must be adapted to the reality it inhabits. As a consequence, at least Bitcoin and Ethereum, are not truly decentralized networks. It's worth mentioning that blockchain development teams are well aware of this problem, and they are taking steps to mitigate it.
Proof-of-stake: The decentralization is measured by the number of validators (stake pools), distribution of the token supply across the validators, and the percentage of staked token supply. The higher the percentage, the higher decentralization.
Is Cardano fully decentralized? ›
Cardano (ADA) is a decentralized proof of stake (PoS) blockchain designed to be a more efficient alternative to proof of work (PoW) networks.
Why are decentralized exchanges better? ›
A decentralized exchange allows individual users to connect and transact assets without a third party. A centralized exchange, conversely, acts as a third party and takes custody of funds or assets during the transaction. The key difference is that a CEX acts as a central authority.
What is the world's first decentralized exchange? ›
Founded in 2021, Violet is a leading provider of compliance and identity infrastructure for the DeFi and broader Web3 sector. The developers of Mauve, the world's first decentralized exchange (DEX) purpose-built for compliance, Violet is actively working to build solutions that restore trust in crypto globally.
Are most decentralized crypto exchanges regulated? ›
DEXs are much more anonymous than their traditional counterparts — users just need to connect a cryptocurrency wallet to the exchange to get started. While DEXs aren't subject to KYC/AML regulations right now, many think they will be eventually since crypto exchanges are now regulated.
Which is better centralization or decentralization crypto? ›
Decentralized Control: Unlike centralized networks, decentralized networks operate via a network of nodes. Each node in such a system operates with equal authority. This eliminates single points of control. Therefore a decentralized concept is more secure and resistant to censorship.
Is Bitcoin centralized or decentralized? ›
Bitcoin is a fully decentralized digital cash system. It is meant to enable peer-to-peer transactions that do not rely on a trusted third party. Bitcoin has a finite supply: there will never be more than 21 million bitcoin.
What is the safest cryptocurrency? ›
Is Bitcoin safe? Bitcoin is the most recognized cryptocurrency, so it's generally viewed as one of the safer investments within the crypto world. As with all cryptocurrencies, however, Bitcoin's price can change dramatically within a short time period.
Is Apple Centralised or Decentralised? ›
Centralized Organizations
Apple is an example of a business with a centralized management structure.
Is Solana decentralized? ›
Solana describes itself as a decentralized, permissionless, secure, and scalable blockchain.
Uniswap is a decentralized exchange that enables peer-to-peer market making. Uniswap is also a cryptocurrency whose symbol is (UNI).
Is Ethereum decentralized anymore? ›
Ethereum is a decentralized blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. It is open-source software.
Is XRP decentralized? ›
XRP Ledger is a decentralized, open-source blockchain that processes and verifies transactions on the network. XRP, the ledger's native currency, acts as a bridge currency to increase the speed and reduce the cost of cross-border transactions.
Is Dogecoin Decentralised? ›
Dogecoin is a decentralized cryptocurrency that was created as a parody of Bitcoin, and has gained significant attention due to its meme-inspired branding and support from Tesla CEO Elon Musk.
What are examples of decentralized crypto? ›
1. Ethereum (ETH) The first Bitcoin alternative on our list, Ethereum (ETH), is a decentralized software platform that enables smart contracts and decentralized applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party.
Is Binance fully decentralized? ›
Binance.com is centralized.
What are the major downsides of decentralized exchanges? ›
Disadvantages of using DEXs. Despite the above advantages, there are various drawbacks of decentralized exchanges including a lack of technical knowledge needed to interact with these exchanges, the amount of smart contract vulnerabilities and unvetted token listings.
What are the disadvantages of centralized exchanges? ›
Bankruptcy Risk: Centralized exchanges are private businesses, so the money they have in custody is a loan they got from an investor. The change of default is always there with a loan. So, anyone who uses a centralized crypto exchange will be at risk of losing money due to this matter.
What are the pros and cons of centralized vs decentralized? ›
Centralization offers better control, efficiency, and standardization, while decentralization provides greater flexibility, responsiveness, and innovation. In practice, many organizations adopt a hybrid approach, combining elements of centralization and decentralization to optimize their AP function's performance.
Which is more secure centralized or decentralized? ›
Greater security: Decentralized systems can be more secure than centralized systems because there is no single point of failure or vulnerability that can be exploited by attackers. Data is distributed across multiple nodes, making it more difficult to hack or compromise.
Disadvantages of a Decentralized Organization
The main disadvantage of a decentralized organization is that you lose control over the day-to-day activities of your company. Maybe “lose” is too strong a word, but you are ceding authority to your managers, which means that you trust their instincts, skills, and talents.
What is the weakness of decentralization? ›
There is a lack of uniformity in the policies followed. There will be a problem of coordination. It will require hiring of trained and qualified personnel.
What are the advantages of decentralized cryptocurrency? ›
One of the main benefits of decentralized currencies like Bitcoin is their openness. All transactions on the blockchain are open and available to the public. The system may gain confidence and responsibility from its users if all transactions are public and easily accessible.
What is a good decentralized crypto exchange? ›
Bisq is our pick for best decentralized exchange because it allows users anywhere in the world to securely and privately buy and sell Bitcoin and a range of other cryptocurrencies.
What important factors should you consider when choosing a Cryptocurrency exchange? ›
6 Things to Consider When Choosing a Cryptocurrency Exchange
- Authenticity and security. It is imperative to do research and guarantee you are choosing a legitimate and secure platform. ...
- Method of purchase. ...
- Supported tokens. ...
- Trading platform, P2P exchange, or broker. ...
- Fee structure. ...
- User interface and user experience.
Poor Security and Transparency
As we have seen, one of the enduring risks of centralized exchanges is their lack of openness. At times, transparency in centralized exchanges has been like looking through a brick wall.
Are centralized crypto exchanges safe? ›
A centralized crypto exchange is a platform which enables users to exchange their crypto assets safely. The centralized exchanges offer a secure environment for buyers and sellers to make transactions.
