Hello everybody,

Uniswap, Pancakeswap, or Curve are known as Decentralized Exchanges (DEX) and Binance, Coinbase or Kraken are known as the most popular Centralized Exchanges (CEX) for holders and traders. So what are DEX and CEX? What are the differences between these two types of exchange platform? And which things we should consider when choosing exchange to trade? You can find the answers for those questions in this part (Part 1). In Part 2, it will be a full report about performance of all of DEXes based on several important metrics related to volume and transactions so that you know how they perform through time.  So, please stay and bear with me.

As always, wish you have great reading time with me. Now, let's dive into.

CEX is the exchange where your transactions are managed by the middleman which is, in this case, the exchange itself. What does that mean? It means that when you transact with someone, your coins or token will not go directly to that person. Instead, the exchange (middleman) will manage the trade.

Let's image that we live in the village. In this village, people do not prefer using fiat money to trade goods. You have rice and another has meat that you want to trade. And other people in the village have the other goods that also have the same demand. Therefore, a group of villagers come to the idea of establishing a market where everyone bring their goods and trade things they need.

This group of villagers own this market and you have to pay the fee for each trade occurred. They also govern the market. Coins and tokens that you trade on the CEX will be stored on your personal account with your name on it.

There are several CEXs such as bank, stock exchange, or Binance, Coinbase.

In contrast, DEX is the exchange where there is no middleman. Another group of villagers creates a huge automated safe based on the blockchain technology advances. Instead of governing by a middleman, this automated market is run and governed by smart-contract which is built and secured by blockchain techniques.

When you have rice and you want to trade meat, you go to that huge automated safe. You give your rice to it and withdraw the meat you need. The ratio exchange is set automatically based on the market demand and the value between two exchanged things.

Unlike in the CEX, after exchanging rice with meat, you take the meat home and store it in your personal wallet or safe.

Uniswap and Sushiswap are some of examples of DEX.

Until now, I believe that you understand the core operation mechanism of both exchanges. Now, we can move to the next part. How they differ from each other? Anh which advantages and disadvantage they hold for them?

On CEX, in order to be listed, there are some technical and legal requirements that need to be met which may become a barrier for startups. Therefore, the coin diversity on the CEX is quite low.

On the other hand, you can find all the projects on DEX. You can trade new and highly-demanded coins which are not available yet on the CEX. It will open more opportunities for users but also involve higher risks.

On CEX, the required standards may protect users from scam because all projects are selected carefully. However, on DEX, there is a high chance that one day when you open your personal safe, all you have is just a list of icons. Not coins anymore.

When you trade your coins or tokens on CEX, unless you withdraw your assets into your personal safe (such as cold wallet), it will be on your CEX account. Usually (if not always) you have to do KYC when you open the account on CEX. It means that you have to provide your personal information such as passport number, social security number, address and your picture to CEX. CEX will know everything about you and your trading activities. Of course, if you forget your password, their customer service will help you get your account back.

In contrast, on DEX, you register and trade by your private wallet such as Metamask. You do not need to share any information about you except your Metamask wallet public address. Therefore, you can keep your privacy with the cost of no support from DEX customer service when you forget your private key.

Let's image that one day, hackers want to destroy both DEX and CEX. If CEX is hacked, your assets under your account will be gone with the hacker while the new girlfriend of your ex who put her assets into her personal safe still have her coins.

On CEX, like other traditional platforms such as Bank or Stock Exchange, they used an established technology which is more stable and process more transactions to build infrastructure.

DEX has some limitations in this aspect. Currently, all DEXs built on ETH blockchain can process around 30 transactions per second while on CEX they can process thousand transactions. However, the blockchain techniques are developing very fast, this limitation will be solved soon.

• If you favor privacy and market diversity, you can consider DEX. It will help you to protect your data while giving you opportunity to access more coins. However, trade with your knowledge and protect your assets.

• If you favor stability, CEX may be a better option for you. Whenever you trade with CEX, remember that your data is now also shared with another entity.

We made it until the end of Part 1. Part 2, I will show you a report of how DEXs perform through time. If you like the content, please feel free to subscribe to receive the notification about next post. Thank you so much for your interest into math, science and technology.

Charlotte.