We have talked a lot about cryptocurrency trading and its tools, and we have a lot about it, but its types are still not entirely clear to some investors and traders.
In this article, we will focus on centralized and decentralized cryptocurrencies trading and the difference between them and how you can choose the most suitable for you to establish a solid and solid investment, but beginning to mature and recall the concept of trading as a whole.
What is Forex Trading?
Trading is an online platform that sells or purchases cryptocurrencies such as Bitcoin or others for other currencies that may be traditional currencies called Fiat currencies such as the dollar or other altcoin cryptocurrencies such as Litecoin.
This trading has two forms: Centralized and Decentralized.
Centralized Exchange (CCE)
This type of trading is the most important in the trading and exchange for investors, as it is the most used means of buying and selling cryptocurrencies holdings. Centralization refers to the use of the third party, or the so-called middle man, to assist in the conduct of transfers, and this party has full control over all transfers.
This broker is trusted by both the seller and the buyer so that they trust them to deal with their holdings of cryptocurrencies.
The reason why so many people follow this form of cryptocurrency trading and introduce a third party into their investment is that this broker, such as the bank, often provides protection, security, and control over transfers. Simply put thousands of dollars, so a broker is useful in such a situation.
Investors and traders doubt that the exchange will not be able to complete their transactions successfully, which makes them tend to use third parties, in addition to using the exchange’s user network to find trading partners.
The most popular examples of central cryptocurrency exchanges are Binance, Coinbase, and others.
Decentralized Exchange (DEX)
Just opposite to the above-mentioned central trading, it is an open-source exchange based on completely decentralized blockchain technology so that no single entity controls the entire data flow.
All transfers on these types of exchanges are done directly between users without intermediaries, what we call P2P network, which is an unreliable and automated system through smart contracts and automatic exchange atomic swap, but its benefits are what drives users to adopt it, as it exceeds most of the problems of central trading Such as suffocation problems due to the heavy pressure on the servers and the penetration that may occur to the networks of banks.
The difference between centralized and decentralized trading
It is quite clear that the main difference between the two types of cryptocurrency trading is the absence or presence of the broker, which entails many other differences that produce a list of the pros and cons of both methods. the last one.
In comparing the two types of cryptocurrency trading we find this group of major spreads, some of which are shown in the previous picture:
In central trading, the control of funds and transfers is entirely in the hands of the third party that manages the exchange. This gives it the credibility of decentralized trading in which the user has full control over the funds and transfers.
Central trading is easy to use because the third party bears the full burden while in decentralized trading the entire burden is placed on the user which makes it rather difficult.
On a decentralized exchange, a user can use a pseudonym and carry on anonymously without showing his true identity at all. This cannot be done on central exchange exchanges as brokers must know the identity of all users.
The disadvantage of central trading is that it is vulnerable to penetration as the presence of the broker is a weak point in the way of transfers that can be intercepted and penetrated and get the key to exchange.
The presence of a single broker for a large number of transfers during peak times may constitute a bottleneck and decline in the broker’s servers, which may cause problems or delays in the completion of transactions and possible failures, which exposes traders to the risk of heavy losses.
Central trading provides an opportunity for many of the advantages offered by the broker to attract and maintain customers as a result of high competition between brokers and different exchanges and the advantages offered by high and advanced, and this is not found in the decentralized trading, which provides the basic functions and features that ensure the successful completion of transfers only.
Of course, liquidity is more and more abundant in central trading because of the broker, unlike decentralized trading, which depends entirely on the user’s liquidity.
Central trading imposes more fees than decentralized trading because of the percentage that goes to the broker for his services as the broker gets a certain percentage on each transaction made and this is one of the disadvantages.
Decentralized trading outperforms at this point as the fees for transfers are low and symbolic compared to central trading fees, and of course, when you pay a higher fee you will get faster confirmation of the transfer.
- Conversion between traditional and digital currencies Fiat-to-Crypto
Central trading platforms offer the possibility of exchanges between traditional Fiat currencies provided by and recognized by governments such as the dollar or euro and Crypto.
While decentralized trading platforms are based on blockchain as mentioned above, this is why it is not possible to switch between traditional currencies and cryptocurrencies through them.