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Switching from CEX to DEX — what’s the point, and what should you be afraid of?

Andrew Zhoao

News editor

Aug 31, 2022 at 03:05

Reddit user vjeva explained why he doesn’t move his assets from centralized exchanges (CEX) to decentralized (DEX) ones. According to him, the issue is that it’s just dangerous, and he doesn’t want to lose his funds, especially considering the constant flow of news about how someone lost a seed phrase, made a wrong transaction, or lost their savings due to system errors. But whether there’s a reason to be afraid, we’ll talk about that next.

CEX & DEX

First of all, let’s understand what CEX and DEX are.

CEX are centrally conducted exchanges that act as the third parties for trading cryptocurrencies. On them, all money swaps take place on domestic servers, and the platform manages all consumers’ data.

What the CEX’s consumers can do:

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  • create accounts to store their funds;
  • perform digital assets swaps that are performed on the CEX servers;
  • make trades;
  • the consumers have to verify themselves.

On DEX, trades are performed with smart contracts. The peculiarity is that there are no servers to process data on such an exchange and no centralized management. The user manages the wallet, and participants conduct money swaps without third parties.

What the DEX’s consumers can do:

  • the wallet and account are managed only by the consumer;
  • money swaps performed with smart contracts;
  • DEX is not a third party;
  • verification of the consumer is not necessary; he keeps anonymity. 

What’s wrong with CEX?

The main problem with such exchanges is the lack of security because user information (including public keys) is stored in online databases. Many large companies suffered from this, and even if they could not save client information, from medical records to credit card data, what about the account of an ordinary user?

Also, on CEX, there are problems with server downtime. This is when cryptocurrency prices fluctuate wildly, especially for BTC and ETH. There were cases when it was impossible to sell cryptocurrency on several CEXs until the volatility disappeared. This creates many difficulties.

In addition, CEX increases the chance of revealing a user’s identity. This is because many governments recently began actively regulating such exchanges in connection with taxation, so it requires them to have an address, social security number, a copy of the passport, and other user information. In the case of an attack by fraudsters, this information would be at risk.

The high fees imposed by CEX and frequent accusations that they conduct outperformance and insider trading.

In contrast, the DEX is devoid of these disadvantages and can eliminate the abovementioned problems. 

Conclusion

According to the author, the entire part of moving your funds to a soft wallet, hard wallet, or even to a different exchange is the most stressful thing he could experience in his crypto journey.

That’s why you should use DEX if you want anonymity, security, and independence from any authorities. On these exchanges, your wallet and account will be controlled only by you. It is also essential to choose the best DEX by functionality, popularity, and growth prospects. CEXs are still popular and used by many traders. However, the trends are that a lot of consumers are disappointed in the reliability of such platforms and are thinking about switching to DEX, but this is a personal choice.

Which exchange do YOU prefer — DEX or CEX and why?

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