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ICO data: Centralized Exchanges vs Decentralized Exchanges


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A common paradox that we see every day in the crypto world is that people use centralized exchanges against the ethos of decentralized cryptocurrencies.

What’s the core difference between centralized exchanges (CEX) and decentralized exchanges (DEX)?

Simply put, a CEX is owned and operated by a company that maintains total control over all transactions and more importantly, wallets. As users of CEXs do not own the private keys of their wallets, they lie at the mercy of bad-actors (hackers, phishers, api hijackers) and security loop holes in the cryptocurrency exchange’s infrastructure.


On the other hand, DEX  is a peer-to-peer, open sourced, automated digital asset trading platform. It does not rely on a third party to intervene or execute transaction orders and this way, it does not hold customers’ funds, positions, or information, and only serves as matching and routing layer for trade orders.

Sure, big players in  the centralized ecosystem such as Binance, Bittrex, Bitfinex, Coinbase, Kraken among others, have laid the road for a high volume of trade which has revolutionized the way that people use and view cryptocurrencies. But it also takes away from the decentralization of exchanges and trade, which constitutes to identity protection.

Reports suggest that almost 90% of the exchanges still use a centralized infrastructure, but the advancements in recent times could change that number. Many Decentralized Exchanges (DEX) have flourished and are bound to change the trade game. Some notable companies are Cryptobridge, Bisq, WavesDex, Idex, EtherDelta and AirSwap, among others.


But why are CEXs preferred? Upon digging deeper, some insight into the advantages and disadvantages were found.


Advantages and Disadvantages of CEX and DEX


-- DEX has lesser trade volume as compared to CEX. This is because of three main shortcomings of DEX - the difficulty of use, limited functionality specification to currency.

-- DEXs don’t have as much liquidity as CEXs.

-- Most DEXs exchange and aCEXpt payment in cryptocurrencies only. Creating a fiat-gateway is a lot harder to ‘decentralize’ due to regulatory hurdles and visibility

-- DEXs aren’t insured while CEXs are. This of course means that, should anything go wrong, users will be returned with their money.

-- Because their nodes are distributed, DEX users experience lower risk from hacking whereas no CEX is immune to hacks. More than 30 cryptocurrency exchange hacks have occurred in the last 9 years, with some of them as big as MTGox, BitGrail, Coincheck etc.

-- Since the hosting of a DEX is distributed worldwide, government intervention is not possible. Government and regulators cannot intervene. On the other hand, Most CEXs are licensed and regulated by government institutions. Governments of at least three countries have banned CEXs in recent years - China, South Korea and Russia.

-- Users can expect a very high level of privacy in DEXs. This is not the same case with CEXs.  Privacy is limited and risk of identity theft increases, because users will be required to provide a wide range of sensitive information about themselves, including bank account details, home address and often, their government-issued ID as well.


Exchange Volume (24h avg) - Top 8 CEXs ($MM)

Centralized Exchanges vs Decentralized Exchanges: An irony in the crypto market



Trade Volume of CEX vs DEX

Centralized Exchanges vs Decentralized Exchanges: An irony in the crypto market



From the above statistic, it is evident that CEXs have a massive market share of trading volumes, as compared to DEX which is ~1% of CEX.

To sum up, choosing between CEXs and DEXs is not exactly cut and dry, as they both have their own advantages and disadvantages. The increasing cost on centralized exchanges, both by regulations and by declining market exchange prices iscreating a market opportunity for decentralized exchanges and this is expected to grow over the coming years.

Read more about the ICOs and STOs that are listed on these exchanges in our ICO market report for February 2019.