The most popular and widely known cryptocurrency exchange in the US is Coinbase and was launched in 2012. Coinbase is a licensed and regulated cryptocurrency exchange. Currently, this platform has licenses for operating in various states and territories in the US.
Coinbase is a centralized cryptocurrency exchange that plays a vital role in transactions. Centralized cryptocurrency exchange represents online trading platforms used for buying and selling cryptocurrency. On the contrary, decentralized exchanges permit peer-to-peer cryptocurrency transactions that securely occur online without the third parties’ need.
Understanding the Concept of Centralized and Decentralized Exchange
- Centralized Exchange
Centralized cryptocurrency exchange functions as a mediator between buyers and sellers. Centralized exchanges provide more reliability as they are controlled and operated by a company; almost 99% of cryptocurrency transactions go through centralized exchanges. One of the examples of centralized cryptocurrency exchange is Coinbase.
- Decentralized Exchange
Decentralized cryptocurrency exchange permits the users to execute peer-to-peer transactions that do not require third-party intervention because of the few drawbacks associated with centralized exchanges. Decentralized exchanges are highly sought after by the users, but they do not facilitate fiat currencies for cryptocurrency trading. Some of the decentralized cryptocurrency exchanges include io, Airswap, Blocknet, Barterdex, etc.
Differences Between Centralized and Decentralized Exchanges
Here are the few differences between centralized and decentralized exchanges –
- Centralized exchanges are used for conducting trades from fiat currency to cryptocurrency and vice versa. Also, they are used for conducting trades among two different cryptocurrencies.
- Decentralized exchanges do not have middlemen and run in a trustless environment. They function as peer-to-peer exchanges and are never associated with escrow service. Further, the transactions are carried out using atomic swaps and intelligent contracts.
- The significant difference between decentralized and centralized exchanges is whether the intermediary is present or not. Decentralized exchanges are less popular and less widespread when compared with centralized exchanges. Nevertheless, there are many decentralized exchanges, and it might become a serious competitor for centralized exchanges.
- The main advantage of centralized exchanges is that it is regulated. Moreover, the centralized exchange needs licenses, adhering to the rules, and approval by a regulatory authority. Decentralization exchange need not have regulation as it is highly challenging because of the distributed blockchain. Even though the government bans cryptocurrency exchanges, decentralized exchanges are free to operate as no central authority can regulate them.
- Presently, centralized cryptocurrency exchanges are more popular than decentralized because they came into existence originally. Although decentralized exchanges have their advantages in accounts and wallets, they are not as popular because centralized exchanges provide better liquidity and infrastructure.
- Centralized cryptocurrency exchanges charge a certain amount as a fee for their services to their customers; these charges vary according to the feature it provides. On the other hand, decentralized exchanges have zero or meager minimum charges as it operates on the blockchain.
- Centralized cryptocurrency exchanges offer several features, and the user can execute margin trading, use portfolio management tools, multiple advanced order types, etc. Decentralized crypto exchanges have limited order types and do not offer margin trading to their users.
Decentralized or Centralised?
Coinbase can be classified as a centralized exchange. Irrespective of the user’s expertise, Coinbase is an easy-to-use cryptocurrency exchange and is one of the best cryptocurrency exchanges that beginners can use. Centralized exchanges are private organizations that provide trading platforms to trade cryptocurrency. Centralized exchanges ask for registration, identification, and the user should go through KYC rules. Decentralized exchanges have high volumes, liquidity, and active trading.
Coinbase is an exceptional choice for investors trading cryptocurrencies. It’s also a good starting point for beginners entering the crypto market. When selecting an exchange, the user should consider several factors like user experience, pairs traded, trading volume, and the security measures adopted by the exchanges for user protection. Decentralized exchanges are still in their early stages but are expected to exhibit tremendous growth in the forthcoming years.