What is the Difference between Centralized and Decentralized Exchange ?
From CLARBLOCK Conference
Decentralized VS Centralized exchanges: Analysis from CLARBLOCK
The healthy development of the crypto environment depends on the responsibility of every stakeholder. The initial idea of a crypto world as a replacement alternative to the old traditional paradigm will be fulfilled on one condition — everyone engaged within the sphere carries their own work with dedication. The community is getting itself together and has finally recovered from hysteria. It has become clear that crypto is not about rolling the dice but it’s about making tough decisions. Hard choices start long before ‘to buy or to not buy’; everything begins with picking a crypto exchange.
At this point, you put yourself in one of two scenarios. Either you work with professionals, reap the benefits and enjoy your ride, or you hand in your assets to rascals in disguise, and end up broke and disappointed. So, by the time you go through the list of exchanges, you are armed to the teeth, and knowledge becomes your best weapon.
Cryptocurrency is traded on two sorts of exchanges — centralized and decentralized. There has been a lot of speculation on whether centralization, as a phenomenon, is relevant in the realm of crypto. Many people argue that centralized crypto exchanges run counter to the essence of transparent decentralized ledger. It is my firm belief that within the crypto world nothing is black and white. There are many halftones between the two concepts, and the question we should ask ourselves is ‘to what extent an exchange must be decentralized?’. Imagine that there is such a thing as complete decentralization; wouldn’t it lead us, social human beings, to disarray?
Decentralisation of exchange:
The decentralized exchange implies trading cryptocurrency without intermediaries directly through the blockchain. Decentralized cryptocurrency exchanges (DEXs) don’t have access to customer’s assets and information; they function the layer for trade orders that executes matching and routing functions. We can’t deny that the aspect of security is the one that rises to the forefront: there’s nothing to steal. The usage of smart contracts brings autonomy and anonymity, P2P transactions. Other than that, a different approach to architecture bears a lot of constraints and limitations.
A DEX user is deprived of a huge amount of opportunities and services that are normally provided on centralized exchanges. These features can’t be implemented on the decentralized because of technical issues. Decentralized exchanges are essentially exchangers with limited functionality. This is the main reason the dwellers of centralized platforms are not very enthusiastic about the transition to decentralized ones.
Nowadays, the user experience of decentralized exchanges are often described as horrible, with none exaggeration. The customer’s journey reminds us of quests and riddles — the steps can be really confusing. In order to exchange one cryptocurrency to a different , a user has got to perform several transactions. While the digital population wants their apps and platforms to be intuitive and simple to use, DEXs still cannot correspond to those realities.
Let’s return in time and recall those ancient pioneering websites — slow and awkward. The same feeling you get while trying to interact with DEXs: UX and UI leave many questions. In terms of fiat-crypto exchange, decentralized exchanges do this exclusively, they are doing not take other payments aside from cryptocurrency.
Transaction speed is another issue worth mentioning. Since the exchange process itself must be directly recorded on the blockchain, the user will conduct his transaction only after the miner conducts the transaction. This aspect might not be a significant factor for small-sized operations. But, for trading giants who do huge-volume transactions in a matter of moments, via algorithmic robots, transaction time interval is a substantial indicator.
Regarding the human factor, which adds uncertainty to technological advancements, choosing a regulated crypto exchange can help avoid scams and provides some peace of mind. However, regulatory rhetoric is out of place within the context of decentralized exchanges. Due to the distributed nature of DEXs, regulators and governments are not empowered to interfere and control. Also, nothing can be insured. There is no physical location, moreover, there is no physical manifestation of an exchange. The unenviable position of DEXs is liable for low trade volumes and insufficient liquidity, which explains the shortcoming to compete with centralized exchanges.
Centralisation is inevitable:
Centralised crypto exchanges are prioritised by the traders of different levels. The reasons are mainly associated with convenience, sufficient functionality, and an enormous number of additional services that traders don’t seem to be able to compromise. Unlike decentralized exchanges, centralized ones approach security through regulation and superb transparency. When the exchange is regulated by a jurisdiction, its moral and ethical principles are stipulated by the law. Trust, because the Most worthy asset of crypto business, is grounded on the clients’ confidence that their financial well-being isn’t threatened. In this digitalised era, these are the basic guarantees we can and need to provide traders with.
Approximately 99% of crypto trade is fulfilled via centralized crypto exchanges. CEX could be a full-fledged organisation that oversees a collection of daily procedures like maintenance, security and growth. The centralized crypto exchanges, or CEXs, play the a part of mediator — a platform connecting buyers and sellers. More prominent industry players provide an in depth list of additional services, trading options like lending, margin trading, high-volume trading discounts, institutional trading tools etc
Centralized platforms build the bridge between fiat and crypto, thus, they accept debit and credit, bank transfers, therefore the two-way exchange is executed seamlessly. From an architectural standpoint, centralized crypto exchanges are often guilty of sameness and monotony. during this case, you’ve got to show to the platforms which were built by teams with a huge financial background. the purpose is, the industry has been nurtured by fanatics and enthusiasts whose emotional element overshadows practical skills and understanding — this is often where the architectural issue comes from. we’ve got paid tons of attention and poured our knowledge into building the trader’s workspace to supply personalized, customized service. a serious challenge during this area is to balance massive functionality with simple use. this can be the exam where many fail.
When speaking about centralized exchanges, we mean the subsequent layers: UI, administration, trading engine and, of course, database. As long as there’s a large amount of customer information being saved, this is often what presents interests for hackers. To be fair, the magnitude of scams and frauds is immense, and even the most important market players fall victims and face reputational damage. Reacting to hacks is an inadequate measure today; treating security as a one-time event means living elsewhere but within the world . so as to make sure pro-activity and predictability, security of crypto exchanges must be a well-managed continuum.
If centralization contradicts the character of cryptocurrency, then complete decentralization contradicts attribute . In decentralized environments bereft of control, supervision, both leaders and their followers will bring nothing but chaos. i feel that the closest future will bring us a replacement sort of trading platform which can be a hybrid option between decentralized and centralized cryptocurrency exchanges.