We’ll tell you everything about centralized vs decentralized currency. Centralized exchanges and decentralized exchanges are very different. However, both of them trade crypto but differently. Now let’s have a look at their differences one after the other.
Security
Because centralized exchange is centralized, and as mentioned earlier, centralization is when one entity controls the whole work. Centralized exchanges can be prone to hackers no matter how secure they are, as long as they are centralized and depend on computer hardware and software.
However, looking on the bright side, a centralized exchange can be good for user interface security. Once you open an account on a Centralized exchange, you will be given the option of 2FA authentication and passwords to secure your account and improve the security of funds.
Also, before one could list their token on a centralized exchange, they will need to go through some procedures like making sure the token is safe to trade and provide some other regulatory requirements for security reasons.
Decentralized exchange, on the other hand, first of, is not governed by anyone. There is no centralized entity in control, so there’s certainly nothing like hacking here, except from the exploitation of smart contracts. On the dark side, because no one is in control, literally anyone can go ahead and list their tokens on this type of exchange. So it’s advisable to be careful with decentralized exchange so as not to end up buying a worthless token.
Features
In terms of functionalities, Centralized exchanges are the winner here. Users are left with so many features to explore the trading of crypto and improve their crypto trading strategies. In a centralized exchange, there are features like margin trading, portfolio management tools, and several sophisticated features.
Decentralized exchange, on the other hand, does not have these functionalities. The features of this type of exchange are limited. However, hopefully, when more advanced decentralized operations enter the world of crypto, we might see more functionalities on decentralized exchanges.
Speed
Centralized exchanges also have the upper hand here when it comes to buying of crypto or moving of funds. Centralized exchanges are faster than decentralized exchanges. Centralized exchanges take an average time of 10 seconds to finish a transaction, while decentralized exchanges take an average time of 15 seconds to execute an order.
Fees
Although both centralized and centralized exchange charges a meaningful amount of fees for transactions for trading funds, a decentralized exchange charges a percentage of the amount traded for each transaction. In contrast, a centralized exchange charges a fee per each trade of money.
Because of this, transactions on a decentralized exchange tend to be higher when trying to trade a large amount of crypto funds, depending on what blockchain the person is trading on.
Crypto Asset Diversity
Currently, there are over 5,000 coins and tokens In the crypto market.
Just as mentioned above, one would need to pass certain criteria a centralized exchange asks for before listing their crypto. However, with decentralized exchanges, anyone can go ahead and list their crypto without any requirements. It’s in the name, after all – ‘decentralized.’
Use-ability
Centralized exchanges are easier to use compared to decentralized exchanges, which can be kind of compared to some people. Transactions on centralized exchanges are entrusted with an intermediary so users get access to money (such as ATMs and debit cards).
Liquidity
Decentralized exchanges’ liquidity can’t be compared to that of a centralized exchange. A decentralized exchange can run out of liquidity if no liquidity providers exist. However, some decentralized exchanges are starting to work on this issue. Recently a new liquidity mechanism called Automated Market Makers (AMMs) was introduced for DEXs
Regulations
Majority of centralized exchanges out there are all regulated by the government and issued a license. Crypto centralized exchange may be forbidden in some parts of the world like South Korea, China, Russia, and India so centralized exchange must always abide by the regulations of the governments.
Decentralized exchanges, on the other as long as you have an internet connection, you can access them from any part of the world. The government does not have a say in decentralized exchanges, so they can’t ban or forbid it. However, the con here is decentralized exchanges do not have customer support.
Authority
On a decentralized crypto exchange, you are in charge of managing your crypto funds. Meanwhile, with a centralized exchange, the centralized entity governing that centralized exchange manages and controls your funds for you. The security and every other thing are in their hands. Of course, there are cons, like if the centralized exchange gets hacked and loses funds, as long as your money is there, then yes, your funds were lost too.
CEX vs DEX
| CEX | DEX | |
| Security | Since they are controlled by a centralized entity, they are prone to get cyber-hacked | They are decentralized, so there is certainly no way they can get hacked, except for the risk of smart contract exploitation |
| Ease of use | User-friendly | Can be complicated |
| Speed | Fast | Not that fast |
| Trading Volume | High trading volume because they are more well-known and mostly used | Low because they are not that popular and not many people use them |
| Liquidity | High | Low |
| Fiat Payment | Yes | No |
| Features | A number of features | Limited features |
| Fees | Can be low | Can be high |
| Regulations | Mostly regulated | Can’t be regulated |
Centralized Crypto Currencies vs Decentralized Crypto Currencies
A centralized cryptocurrency is simply centralized. It is regulated and governed by a central authority. Examples of centralized cryptocurrencies are CitiBank’s Citicoin, the Utility Settlement Coin (USC), and the Japanese MUFG Coin.
A decentralized cryptocurrency is simply decentralized, and it is not and can not be regulated by anyone. An example of a decentralized cryptocurrency is Bitcoin. Bitcoin is the first and most well-known cryptocurrency in the crypto market today.
The following table illustrating the differences between a centralized and decentralized cryptocurrency:
| CEN | DEC | |
| Issuer | Banks, financial institutions, or governments could be the issuer | No issuer |
| Holders | Mostly, the people in the country or state hold and make use of this crypto | Anyone from anywhere |
| Monetary Value | Usually depends on the particular fiat currency it’s pegged with | Has its own monetary value |
| Fluctuations | Less volatile | Highly Volatile |
Frequently Asked Questions
What is the difference between centralized and decentralized cryptocurrency?
Centralized cryptocurrencies are issued and controlled by a central authority such as a bank or government. Examples include Citicoin and MUFG Coin. In contrast, decentralized cryptocurrencies like Bitcoin operate without any central control, are managed by blockchain networks, and are accessible to anyone with an internet connection.
How do centralized exchanges (CEX) differ from decentralized exchanges (DEX)?
Centralized exchanges act as intermediaries and manage user funds, offering features like fiat payments, margin trading, and customer support. Decentralized exchanges, on the other hand, allow peer-to-peer trading without intermediaries and give users full control of their assets but often have fewer features and slower speeds.
Which is safer: centralized or decentralized exchanges?
Centralized exchanges are generally user-friendly and secure with features like two-factor authentication, but they are more vulnerable to hacking since they store user funds. Decentralized exchanges reduce that risk by allowing users to control their own assets, though they can be exposed to smart contract vulnerabilities and lack customer support.
Why do centralized exchanges have better liquidity than DEXs?
Centralized exchanges often have higher trading volumes and are more widely adopted, giving them deeper liquidity pools. Decentralized exchanges may suffer from lower liquidity unless supported by Automated Market Makers (AMMs) or large liquidity providers.
Are decentralized exchanges legal everywhere?
Unlike centralized exchanges, which must follow government regulations and licensing in various jurisdictions, decentralized exchanges are globally accessible without restrictions. However, this freedom comes with trade-offs, such as the absence of regulatory oversight or formal dispute resolution processes.
