Online cryptocurrency trading is more popular than ever. To become a trader, you need to use a crypto exchange platform and start buying and selling digital currencies with a goal to make a profit.
There’s one dilemma that many new cryptocurrency traders face: whether to choose centralized or decentralized exchanges.
In this article, we’ll make a quick overview of both types of exchanges and point out the main advantages and disadvantages of each kind. That way, you can decide which type of platform suits you more.
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Centralized Exchanges
A centralized exchange is operated by a centralized body. In other words, there’s a group of people — a centralized organization — that makes the rules and offers trading services to you. In some way, centralized exchanges are quite similar to banks, meaning you’re not the only person who has access to your funds.
When you swap coins, the exchange will act as a mediator between you and other users, which means it also has information on all your changes.
Is this a bad thing? It depends on your point of view. Suppose you’re not comfortable with someone else having access to your sensitive data. In that case, you might want to stay away from centralized platforms as that increases the chances of your funds getting stolen by cyber attackers. There have been examples of entire exchanges being robbed (we all remember Mt. Gox).
However, it’s safe to say that the overall situation with security breaches improved with time. Simply put, centralized exchanges improved their security protocols to safeguard all users and their funds. Still, your funds are a bit more exposed compared to decentralized exchanges.
If you opt to use centralized platforms, please make sure to stick to the reputable and regulated ones. There are plenty of centralized exchanges out there, and some of them have been accused of manipulating data to make a profit. You definitely want to avoid that kind of platform at all costs.
Let’s take a look at the most important advantages and disadvantages of centralized platforms.
Pros
- Allow fiat currencies
- Beginner-friendly and easy to use
- Regulated around the globe
- Have great liquidity
Cons
- Less secure compared to decentralized exchanges
- You have to open an account and provide sensitive data due to regulations
- Untrustworthy exchanges can manipulate data (fake volume, price manipulation, and more)
Decentralized Exchanges
Decentralized exchanges come in all shapes and sizes. Some of them are complex platforms that require you to master the art of cryptocurrency trading if you want to use all their features. Others are as easy as ABC, offering quick and easy swapping of your favorite cryptocurrencies. For instance, by using this BTC to XMR converter on Godex exchange, you’ll be able to swap the two popular digital currencies in just a couple of clicks.
The main advantage of decentralized platforms is that they are completely anonymous. You don’t have to open an account or leave any kind of sensitive data that could compromise your security. Instead, all you have to do is connect your wallets and start trading the cryptocurrencies you prefer.
Moreover, decentralized exchanges are more affordable than their centralized counterparts. Namely, since there are no intermediaries making the transaction possible, the fees are much lower. In the long run, you can end up saving a lot of money on fees.
On the other hand, decentralized exchanges can struggle with liquidity from time to time, especially if they aren’t very popular among traders. In that case, you might find it difficult to swap some of the less popular cryptocurrencies.
It goes without saying that the security levels are off the scale when it comes to decentralized platforms, simply because all trading is completely anonymous and funds usually aren’t stored on the site itself.
Let’s recap some of the biggest advantages and disadvantages of decentralized exchanges.
Pros
- Safe, secure, and reliable
- All trading is usually completely anonymous
- Low fees
- Control over your funds
Cons
- Most decentralized exchanges aren’t easy to use, as their interface is suitable for experienced traders
- Fiat currencies usually aren’t accepted on decentralized platforms, meaning they are only for crypto-to-crypto trading
- Less popular decentralized platforms may sometimes struggle with liquidity
Final Thoughts
Nowadays, both types of cryptocurrency exchanges are great if you stick to reputable platforms that are trusted by users around the globe. However, we advise reading more about every platform before using it, to learn how it works and gain insight into its advantages and disadvantages.
If you’re not sure which type of exchange is the best for you, you should try answering the following question: do you value security and privacy more than liquidity and variety of features? If yes, you should consider using a decentralized exchange to trade cryptocurrencies. Otherwise, make sure to check out some available centralized options, as there are plenty of great ones out there.
