CEX is simply mean centralized exchange meanwhile DEX means decentralized exchange.
It is important that you know and understand the difference between DEX and CEX as you are getting a hang of crypto in the beginning.
If there is something you want me to cover and explain in simpler terms, let me know in the comments below.
Bitcoin and Ethereum have been a revolutionary innovation for us as it offers a completely new way to deal with your money.
With the help of crypto, you are now the sole owner of your assets.
So what does that actually mean to you?
It means that you do not have to deal with rent seekers and middlemen because they are not needed anymore thanks to Bitcoin and Ethereum.
Crypto is a superior alternative to the traditional financial system since it moves 24/7/365; there are no rent seekers, and you become your own bank so you earn what you are should with your assets.
Anyone that is getting into crypto should really consider a hardware wallet at once.
However, if you only got a few hundred bucks you do not have to stress about it at once since you are just learning the ropes.
I recommend that you would get a Ledger or a Trezor.
They both are highly regarded and will keep your crypto assets secure.
Centralized Exchanges
Centralized exchanges are the most common place where retail simply buy and sell their cryptocurrencies.
This is a third-party marketplace and examples of these are Coinbase and Binance.
A CEX is a central place where it is easy to exchange fiat to crypto and vice versa, pretty much to do it all in one place.
The main goals of all Centralized exchanges are to make it easy for people to directly exchange fiat to crypto, crypto to crypto, collect fees, KYC for customers, and have an easy experience that most people are used to.The whole thing about centralized exchanges may be a bit confusing for new people in crypto.
Centralized exchanges have nothing to do with the crypto bought or sold there but only with the exchanges.It is rather a direct reference to the operation of the exchange.
This is one of the leading examples of a CEX and currently the most popular place to buy and sell cryptocurrencies in the US.
If you use a phone, a tablet, or a computer, it is pretty much the same, really simple stuff to use.
Binance is the largest centralized exchange globally and is also an easy-to-use exchange.
Coinbase and Binance are a little different but have the same purpose.
Both are simply aiming to offer retail an easy way to buy crypto assets with fiat in one place.
They are designed to be user-friendly and should be really easy to use.Both of them are also offering services that traditional brokerage firms would also do when you are buying stocks.
They make crypto purchases be similar to the traditional stock purchases, so nothing hard at all.
Just to add this again since I am trying to bonk it into you that if you do not own the keys to your crypto assets, you are not really the owner of it.
Buy and use a hardware wallet and keep your assets in it to make sure you are the sole owner of your crypto assets.
How To Use A Centralized Exchange
If you are interested to get started in an easy way with a centralized exchange, this is how you do it.
- First, you must create an account.
- This is where you can enter your identification information and bank account information.
- This is simply called KYC, meaning Know Your Customer.
- In order to trade on a centralized exchange, you need to create an account and deposit funds in either fiat or cryptocurrencies.
You can do money transfer, pay with debit/credit card, or you can also transfer funds from your hardware or hot wallet and send them to the exchange via the crypto address of the exchange.
It is worth noting that centralized exchanges will always have limits.
Limits on how much you can buy and withdraw daily and weekly.
Once the funds land on the exchange, your funds will update on the account balance and will be available for purchasing crypto.
After your funds have cleared on the exchange and have officially settled, you will be able to withdraw and deposit it into your hardware wallet, or any other wallet for that matter, as well.
PROS & CONS With CEX
There are both pros and cons with using a centralized exchange, so let us take a look at what they are.
The Pros are mainly this:
They have a really easy to use UX, and most people would be familiar with how to use it.
They have high liquidity, so you will not be stuck and get to sell your assets.
The trading volumes are high on these exchanges.
They have an arsenal of different trading tools for you to use.
They accept fiat deposits which makes it easy to get started in crypto in a safe way before you get your head around it all.
- The Cons, on the other hand, are this:
- The security is compromised.
- Your anonymity is compromised due to the KYC.
- There are strict regulations, this also depends on which area you live in.
- Not your keys, not your coins.
I know, it is really easy and convenient to use centralized exchanges, but for god's sake do not give me deaf ears on the cons here either.
At the end of the day, leaving your coins on the exchange will leave them at risk to hackers, changes of exchange limits of purchases and withdrawals, subjected to their fees they charge you, and the risk of being locked out due to regulations.
In my opinion, only using a CEX is to oppose the idea and nature of crypto and compromises the main idea of it all, to keep it decentralized.
Decentralized Exchanges
So to understand what a decentralized exchange is, we should first look at its fundamental nature.
Decentralized finance also called DeFi is the replacement of financial intermediaries by decentralized applications called Dapps.
It is an alternative to the current financial system because DeFi is replacing the traditional financial system through the use of smart contracts on the blockchain.
Smart contracts are simply made of code.
All that you need to participate in DeFi is to have an Ethereum wallet.
