Multi-dimensional analysis of the difference between CEX and DEX

A multi-dimensional analysis of what exactly is the difference between centralized and decentralized exchanges, and what are the advantages and disadvantages of each.

CEX stands for Centralized Exchage, which means centralized exchange, and DEX stands for Decentralized Exchange, which means decentralized exchange. Based on this, we will analyze the difference between centralized and decentralized exchanges, and what are the advantages and disadvantages of each.

Multi-dimensional analysis of the difference between CEX and DEX

Trading Process
Most exchanges today are centralized exchanges, such as Firecoin, Cryptocurrency, OKEX, etc., which are well known to us. The first time an ordinary user buys digital currency is done in a centralized exchange, first you need to register an account in the exchange through your cell phone or email, in order to be able to trade normally, you usually also need to conduct KYC (Real Name Verification), KYC passed before you can pay fiat currency to buy digital currency in the exchange, and then you can trade freely in the exchange. Transactions on the exchange are not restricted by blockchain technology, and you do not need to keep the private key of your own address. Transactions are done by the internal aggregation of the exchange program, which is actually the process of the platform database keeping accounts in each account. When you want to transfer the assets within the platform to other exchanges or personal wallets, you can perform a coin withdrawal operation and the platform will transfer the assets to the specified address.

For decentralized exchanges, such as Uniswap, SushiSwap, Curve, etc., users need to first create a wallet of their own in the decentralized wallet, keep and backup the private key, and transfer the digital currency to this address. Since the private key is only known to you, the assets can only be operated by you alone. Then you can use the wallet to log in to the decentralized exchange to trade. Logging in is actually the process of authorizing the decentralized exchange to access the wallet, which is your account. Once the transaction is completed, the assets can be viewed directly in the wallet without the need to withdraw coins.

The difference between the two
CEX, which bases asset storage and trading operations on the centralized institution that built the exchange, relies entirely on the user’s trust in the institution and is very risky.

DEX, the assets are decentralized and hosted, and the transactions are all on the chain, which is safe and transparent to check.

Since users’ assets are concentrated in CEX, the security of the assets is completely controlled by the exchange. Small exchanges run the risk of fraud and runaways, while large exchanges can become key targets for hackers or other unscrupulous elements, and historical events that have occurred in the past can show that platforms are not able to guarantee the security of funds, such as

The MGEX exchange rolled over hundreds of millions of dollars.

DragonEx exchange wallet servers were hacked to steal assets of no less than $5 million.

CoinAnchor exchange lost $41 million to malware and phishing attacks.

UpBit exchange’s private key server was attacked and over 58 billion KRW of ETH was transferred.

The theft of nearly $20 million of digital currency on the Bithumb platform, which was investigated to be an insider theft with no trace of hacking.

And CEX got the user’s personal information in the authentication, these data can be easily leaked, have you received various harassing phone calls claiming to be the customer service of digital currency trading platform?

In DEX, because there is no KYC, there is no risk of personal information leakage, the funds are placed in the user’s wallet address, the attack becomes more decentralized, and the amount is not as attractive in comparison. TLS certificates, and posting vulnerability bounty programs on well-known vulnerability bounty platforms in advance to avoid security risks.

In DEX, as long as users raise security awareness and keep their private keys well, the security of assets will still be in their own hands, and there will be no asset theft and internal operation risks like those in CEX due to human factors. However, for white users who do not understand the basic knowledge of blockchain and do not know how to use a wallet, perhaps a centralized exchange at the head would be a better choice. After all, there is no absolute security in the world, and it is recommended that different people need to choose the right exchange for themselves based on their own perceptions.

User experience
CEX is usually for ordinary users, because the threshold is low, the operation is simple, the transaction is fast, and you don’t need to master the blockchain just to trade conveniently, and as long as the platform is stable and trustworthy, it can attract many investors.

On DEX, they are usually developers and geeks, who have higher requirements for security and secrecy of transactions and understand the underlying principles of blockchain, but with the frequent security incidents and mines on CEX, more and more ordinary users start to understand the use of DEX.

Transaction Fees
For coin charging, the user’s personal wallet address (or other exchanges) is topped up to the address assigned to the user by the current exchange, which basically does not charge a fee at the moment.

For transactions, the exchange charges a fee, which is deducted directly from the corresponding coin and is borne by the user.

Withdrawals, where the exchange wallet is topped up to the user’s wallet address (which can also be another exchange’s address), a fee is charged directly to the user for withdrawing coins.

Coin charging, using DEX means that you have authorized wallet access and there is no separate coin charging operation.

For transactions, decentralized exchanges also charge a fee, usually in the range of 0.1%-0.3%, which will be deducted directly from the coins traded, and the actual miner’s fee generated by the transaction also needs to be borne by the user.

Withdrawal of coins, after the transaction is completed, the assets can be viewed directly in the wallet without the need for a withdrawal operation.

CEX will be charged a certain fee by the platform when trading and withdrawing coins, which will vary from platform to platform and coin to coin, and will also change with the fluctuation of the coin price. DEX, on the other hand, seems to incur additional fees only when trading, but because it includes both fees and miners’ fees, the current Ethernet network is congested and miners’ fees are still always at a higher state. So the transaction cost of DEX is usually not lower than that of CEX.

Future trend
Because DEX has obvious security advantages over CEX, it can significantly reduce various risks caused by human factors. As the technology continues to iterate, DEX is becoming more and more mature, and now has greater improvements in coin uploading, liquidity, trading, operation and maintenance, security, etc. It is also increasingly seen as a future trend, but currently CEX is still dominant, and there is a large user base. will always exist, DEX and CEX will definitely co-exist in the long run.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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