Centralised exchanges involve a third party to store funds and perform trading. Decentralised exchanges allow users to trade directly with each other without a middleman.
A centralised exchange is a platform whereby users can buy and sell digital assets, such as cryptocurrencies and tokens, using a third party. It acts as a middleman between buyers and sellers, and is responsible for managing the order matching process, as well as the transaction of funds.
It is generally the only point of contact between the two parties, and as such, the exchange is responsible for the security of the funds and trades.
The main benefit of a centralised exchange is its convenience. It is easy to use and provides a reliable platform for users to trade digital assets. It also allows users to access a wide range of digital assets, as well as different order types and market depth.
However, this convenience comes at a cost.
Centralised exchanges tend to have higher fees, as the exchange is acting as the middleman and is profiting from the transaction.
Furthermore, these exchanges are highly susceptible to cyber-attacks and other malicious activities, due to the fact that all user funds are stored in a single, vulnerable location.
A decentralised exchange, on the other hand, is a platform whereby users can buy and sell digital assets without the need for a third party.
The exchange is built on a distributed ledger, such as the blockchain, and is not owned or managed by any single entity.
This means that users are able to trade without trusting a third party, as the exchange is run by a network of computers.
The main benefit of a decentralised exchange is its security. As the exchange is not owned or managed by any single entity, the funds are much more secure.
The distributed ledger technology used by these exchanges makes it much harder for malicious actors to access and manipulate user funds.
The lack of a centralised authority also means that decentralised exchanges tend to have lower fees than centralised exchanges, as there is no intermediary taking a cut of the profits.
However, decentralised exchanges have their own drawbacks. They tend to have limited liquidity, as user funds are spread across multiple nodes, and they generally lack the features and user-friendliness of a centralised exchange.
They are generally not as well-regulated as centralised exchanges, meaning that users must take extra caution when trading.
In conclusion, centralised and decentralised exchanges both have their own benefits and drawbacks.
Centralised exchanges offer convenience and access to a wide range of assets, but are more susceptible to cyber-attacks and other malicious activity.
Decentralised exchanges offer improved security and lower fees, but generally lack the features and user-friendliness of a centralised exchange.
Ultimately, it is up to the user to decide which type of exchange best suits their needs.
