The best way to understand the Decentralized exchange (DEX) is to compare it to the centralized exchanges that are used now (CEX).
There are two types of exchanges: Centralized and Decentralized.
Exchange platforms are an important part of blockchain. They help Defi (Decentralized finance) grow and replace fiat finance, which is run by institutions. There are two kinds of exchanges: decentralized exchanges and centralized exchanges. This article is about decentralized exchanges. Most people still use exchanges like Binance, which are centralized. Both work the same way because they both make it easy for users to get to their digital assets and let them trade them for other digital assets. But with the difference that the body is controlled.
First understand what is a centralized exchange, or CEX?
A centralized exchange (CEX) could be a room run by a company or organization. In many situations, it’s a lot safer to send a deposit than to keep your own things. Banks can take many different steps to protect their assets. Banks can also help you with things like loans because they have a lot of money and a good relationship with their customers.
When this happens, centralized exchanges start to look a lot like banks. You will store your assets on the exchange and trust the third party, which is the company or organization that runs the exchange, to keep your assets safe.
Also Read Here: Why White Label Solutions Are Used For Crypto Exchange
What is a decentralized exchange, or DEX?
Decentralized Exchange (DEX) is the same kind of market as traditional finance, but there are no middlemen. The role of the middleman is to store and manage the assets. These tasks are perform by trust middlemen. In Dex, there is no middle man.
By cutting out the middleman, the time it takes to do a transaction goes down, but more importantly, it becomes much harder to hack and interfere.
What’s different about CEX and DEX?
The difference between a centralized exchange (CEX) and a decentralized exchange (DEX) is clear in these three ways:
Fund Control
Exchange users are experts at making deposits to the exchange so that they can trade or exchange. An intermediary trading service is in charge of these funds. This means that the order books and the rights to keep them are in the hands of centralized platform services, just like the custody rights.
In a decentralized cryptocurrency exchange platform, users deal directly with different traders instead of a central server. There is no one place where command books and custody rights are kept. So, users and participants on this platform are in charge of the money.
Anonymity
Several centralized exchanges let traders set up accounts that are anonymous. But KYC and AML laws are now strictly followed because of new government rules that came out in the past few months. On the other hand, everyone can stay anonymous on decentralized exchanges.
Accuracy
Users of a centralized exchange depend on the platform to validate and approve their transactions. In a way, the platform could be a third-party middleman that helps people exchange crypto in a safe way.
With a decentralized exchange, you rely on a system with many nodes that work together without a middleman.
Why is DEX going to take the place of CEX?
Short wait times and low costs Decentralized exchanges can help transactions happen much faster and for a lot less money than centralized exchanges.
Security
Decentralized exchanges don’t keep their users’ money and don’t let any organization mess with the way it works. This makes it hard to hack the exchange. In the past, there have been a number of attacks on centralized exchanges.
Integration
This is a big reason why decentralized exchanges are good. Several decentralized exchanges work seamlessly with popular hardware wallets to make trading and exchanging much safer.
Users will send coins straight from their wallets to the smart contracts of the many decentralized exchanges. With centralized exchanges, users can’t transfer coins from their wallets to the exchange by typing in the private key.
Full Power Over Money
This is a big reason why decentralized exchanges are good. Several decentralized exchanges work seamlessly with popular hardware wallets to make trading and exchanging much safer.
Users will send coins straight from their wallets to the smart contracts of the many decentralized exchanges. With centralized exchanges, users can’t transfer coins from their wallets to the exchange by typing in the private key.
Final Thoughts
Over the years, many decentralized crypto exchange development platforms have sprung up. Each one builds on what came before to improve the user experience and create more powerful exchange venues. In the end, the idea seems to have a lot in common with self-sovereignty: like with cryptocurrencies, users shouldn’t trust a third party.
With DeFi’s fast growth, DEXs and NFTs (non-fungible tokens) are being used a lot more. If the current trend keeps going, it’s possible that we’ll see more innovations in technology across the whole business.
