What is Decentralized Exchange (DEX) and the Difference between DEX and CEX in Detail
Decentralized exchanges (DEX) are gaining more and more attention in the world of cryptocurrency trading. These platforms are fundamentally different from traditional centralized exchanges (CEX), especially in terms of transparency, security, and control of transactions. For Taiwanese users accustomed to CEX, understanding how DEX works and the key differences between it and CEX will help you make more informed choices in the cryptocurrency world. In the following section, we will take an in-depth look at how DEX works and its strengths and weaknesses, and analyze it against CEX to help you fully understand the differences between the two.
What is a Decentralized Exchange (DEX)?
A decentralized exchange (DEX) is a type of cryptocurrency trading platform that, unlike traditional centralized exchanges (CEX), does not rely on a single, centralized organization to manage transactions. This means that transactions take place directly between users, rather than going through a third party. dex operations are usually based on blockchain technology, and all processes of trading are open, transparent and de-trusted. For example, DEXs like Uniswap and SushiSwap allow users to exchange tokens directly, with all funds held in the user's wallet rather than in a centralized pool on the exchange.
On DEX, users have full control over their funds, which makes it better than CEX in terms of security and privacy. due to its decentralized nature, DEX is usually not as liquid as CEX, and the interface may not be as user-friendly for newbies.
Advantages of Decentralized Exchanges (DEX)
1. security and control of funds
In DEX, users always keep their private keys and funds. This means that no third party can freeze or steal funds, thus greatly increasing security. Users' cryptocurrencies are stored directly in their wallets, not in the exchange's centralized account, which avoids the risk of losing funds in the event of a hack on the centralized platform.
2. Anonymity and Privacy
DEX usually does not require registration or identity verification, which is a major advantage for privacy-conscious users. On these platforms, you can avoid having to provide personal information, a step required by many CEXs, and DEX is ideal especially for traders who wish to remain anonymous.
3. Decentralized operations
DEX is built on blockchain, which makes the trading process completely decentralized and not controlled by any single entity. This not only improves the transparency of trading, but also ensures that the platform operates without the interference of a centralized body, avoiding destabilizing factors such as exchange shutdowns.
Shortcomings of Decentralized Exchanges (DEX)
1. low mobility
Although some large-scale DEXs (such as Uniswap) use automated market maker (AMM) models to improve liquidity, the overall liquidity of DEXs is still relatively low compared to CEXs. This can lead to higher slippage on certain trades, especially when the market is volatile.
2. Higher operational threshold
For users unfamiliar with blockchain technology, the use of DEX may appear somewhat complicated. For example, users will need to have a cryptocurrency wallet, be familiar with how to conduct on-chain transactions, and understand the associated blockchain fees (i.e., "gas fees"). These steps can be daunting for beginners and lack the intuitive interface of CEX.
3. Lower monetary support
In contrast to CEX, many DEX platforms do not directly support fiat currency access and trading. This means that you will have to convert your fiat currency to cryptocurrency before you can trade, which may add some additional time and fee costs.
Differences between decentralized exchanges (DEX) and centralized exchanges (CEX)
1. Centralization vs. decentralization
The biggest difference is that CEX is controlled by a centralized organization, while DEX is decentralized based on blockchain technology.CEX is managed by the exchange itself, and users' funds are stored in the wallet within the exchange, which enables the exchange to monitor and process all transactions. In DEX, all transactions are automatically executed by smart contracts without the intervention of any single organization.
2. control of user funds
CEX requires the user to deposit funds in the exchange wallet, which gives the exchange control over the funds. With DEX, the user is always in control of their funds, which are only transferred when a trade occurs.
3. safety and risk
As CEX involves centralized management, users' funds may be at risk if the exchange suffers a security breach or hacking attack. In contrast, the decentralized nature of DEX reduces these risks, as funds are always kept in users' own wallets under their control and are not affected by a single platform.
4. Transaction speed and cost
As CEX platforms typically have higher processing power, their transaction speeds are faster than those of DEX. CEX transaction fees may also be relatively low, as these platforms often offer high liquidity to minimize handling fees. On DEX, on the other hand, transaction speeds and fees are limited by the performance of the blockchain itself, e.g., the Gas fee on the Ether network can sometimes be very high.
How to choose the right exchange for you?
When choosing an exchange, you need to make a decision based on your needs. If you value the safety of your money and want to maintain full control, then DEX is certainly a good choice. On the other hand, if you are more interested in ease, speed and liquidity, then CEX may be more suitable for your needs. Many users choose to use CEX and DEX in a complementary manner depending on their specific circumstances, for example, trading fiat currencies on CEX and then transferring funds to DEX for cryptocurrency exchanges.
Frequently Asked Questions Q&A
Q1: Is DEX safer than CEX?
A1: Generally speaking, due to the decentralized nature of DEX, compared to CEX, it can reduce the risk of the platform being hacked, but DEX is not completely risk-free, and users still need to operate with caution and keep their private keys safe.
Q2: How do I start using DEX?
A2: You need to have a cryptocurrency wallet that supports decentralized exchanges, such as MetaMask or Trust Wallet, and then you can start trading by transferring funds to the wallet and exchanging tokens on DEX-enabled platforms.
Q3: How are DEX's transaction fees calculated?
A3: DEX's transaction fees are primarily composed of blockchain transaction fees (Gas Fees), which are fees paid to the blockchain network to validate transactions. The Gas Fee may vary from one blockchain to another (e.g. Ether, Coin Smartchain, etc.) and may be higher during busy trading periods.
Hopefully, this article has helped you better understand decentralized exchanges (DEX) and how they differ from CEX, so that whether you're a newbie or a veteran, you'll be able to make more informed decisions when choosing an exchange!
English 
Chinese