Summary
The Central Trading Platform provides digital currency trading services to registered users, typically allows for the matching of buyers and sellers with an order list, and may provide its verified users with various digital currency products. For beginners, a centralized trading platform provides the easiest way to get started without needing in-depth knowledge of blockchain infrastructure and tools.
The decentralized trading platform uses on-chain smart contracts to manage its trading services and, in most cases, swaps tokens from liquidity pools, where liquidity is supplied from other users in exchange for a swap fee.
You can access the decentralized trading platform without registration, which means it is available to everyone who has a wallet and some cryptocurrencies. Decentralized trading platforms are the gateway to the world of decentralized finance (DeFi) and users enjoy a great deal of freedom. However, it lacks the support that a centralized trading platform can provide and it is easy to make irreversible errors when using it.
the introduction
If you've done any research on cryptocurrencies, you've probably heard of decentralized trading platforms. Maybe you're already a customer of a centralized exchange like Binance but want to use a decentralized exchange, or maybe you're looking to buy the latest DeFi token but it's not currently available on centralized exchanges.
Whatever your story, you should know the fundamental differences between a centralized trading platform and a decentralized trading platform before you decide which one to use. Each has advantages and disadvantages, depending on what you want to do and your level of experience.
Why are there different types of trading platforms?
If you are a new trader or only have experience with traditional finance, the difference between a centralized trading platform and a decentralized trading platform can be confusing. A centralized trading platform works similar to what you might find in the world of stocks—a single entity operates with an order list in which market makers and market takers place orders. The order list then matches buyers and sellers and deducts a small portion of the transaction as a fee.
The centralized model operates mainly on an order list and a single trading entity. To use a centralized trading platform like Binance, you must create an account and verify your identity according to local regulations. The Trading Platform will also hold the assets you wish to trade on the Central Trading Platform after you deposit them into your Central Trading Platform account,
The decentralized trading platform is managed through smart contracts, which are self-executing pieces of code on the blockchain. An entity or project may create and help manage a decentralized trading platform, but it can, in theory, manage itself as long as people provide it with liquidity.
Unlike centralized trading platforms, decentralized trading platforms do not use order lists to facilitate trading, instead, they mainly use an automated market maker model. In order to use a decentralized trading platform, all you need is a cryptocurrency wallet and some cryptocurrencies (enough to pay any processing/transaction fees). Due to its decentralized nature, users are not required to register or create an account.
For starters, a centralized trading platform offers a more user-friendly experience and an easier entry point, so if anything goes wrong, you can contact the trading platform's customer support team. A decentralized trading platform has several benefits as well but usually attracts experienced cryptocurrency users who prefer decentralization over ease of use.
Centralized trading platforms: advantages
Ease of use
A centralized trading platform like Binance focuses on providing user-friendly experiences for all types of users, enabling crypto beginners to access simple conversion tools like Binance Convert, while at the same time enabling experienced traders to use TradingView tools from the platform. Spot trading. A centralized trading platform will likely also include detailed how-to guides as part of its services (such as Binance Academy).
The procedure of logging into a central trading platform is similar to the procedure of opening a bank account. Many of us are already familiar with this system and technical knowledge is not necessary in this matter. Most centralized trading platforms offer the ability to pay using credit or debit cards in order to make your first investment in cryptocurrencies as easy as possible.
Support and protection
One of the biggest obstacles for beginners in the world of digital currencies when using decentralized trading platforms is getting used to decentralized tools, as digital currency wallets, addresses, processing fees, and other aspects of blockchain chains are not error-tolerant. There are no system administrators to provide support, so you are on your own, if you forget your seed phrase or accidentally send coins to another wallet.
You can avoid these pitfalls if you trade using a centralized trading platform. For example, customer support can help you if you lose access to your Binance account, and there is no need to pay processing fees when transferring your cryptocurrencies between Binance products. These measures support users and help avoid the difficult errors that people sometimes make on decentralized trading platforms.
More integrated services
A centralized trading platform can offer a wide range of integrated products and services, making it a one-stop-shop. On a centralized trading platform like Binance, you can enjoy trading and storage services, access to a non-tradable token market, a launching pad, a peer-to-peer (P2P) trading platform, and more without Leave the platform. Moreover, you can simply transfer money between these different places. You can pay by card and enjoy deals with partner merchants like Travala.
Centralized trading platforms: disadvantages
Vulnerability to attack
As large, centralized entities, centralized trading platforms are vulnerable to frequent attacks, which means that any user's funds stored on the centralized trading platform are vulnerable to theft. Despite making security a priority, they cannot eliminate the risk of hacking and theft, and several high-profile hacks have occurred over the years. Such as hacking the MT Gox platform.
Additional transaction fees
You will have to pay a transaction fee for most, if not all, services you use on the Central Trading Platform, and this fee may be hidden or “bundled within” the service. Due to their higher operational costs, centralized trading platforms struggle to compete with the lower transaction fees offered by decentralized trading platforms. However, the additional transaction fees paid to the centralized trading platform must be outweighed by the processing fees paid while using the decentralized trading platform, which can be quite significant. In some networks.
The user does not have custody of the assets
When using a central trading platform, you must deposit your digital currencies into your wallet, which means that you do not have to have custody of your funds and assign them to the central trading platform, and thus, you may not be able to withdraw them whenever you want. This presents a problem, if a trading platform goes bankrupt, you could end up losing all your money. This situation is similar to depositing your money at a bank—while you're hustling at the bank, you may not be able to access your money.
Decentralized trading platforms: advantages
Custody of funds
When you use a decentralized trading platform, you retain custody of your funds until you complete a trade or interaction, meaning you can transfer and store them as you wish. If your cryptocurrencies are stored in a wallet where only you can access the seed phrase, you have complete control over your assets, a feature that proponents of decentralization appreciate.
Data protection and privacy
When using a decentralized trading platform, there is no need to provide personal and personally identifiable information and be trusted to store it securely, meaning your personal information is protected from ill-intentioned people who wish to steal your identity. Remember that when you use a trading platform, you are limited by local laws and regulations.
Fewer barriers to entry
Using a decentralized trading platform only requires a wallet, some cryptocurrencies to trade, and a processing fee, making decentralized trading platforms highly accessible to a wider group of people globally. This is a great benefit to decentralized fans, as many appreciate the decentralized nature of the trading platform. It has a greater degree of privacy. Of course this also needs to be thought about in the context of local legislation, as well as the related controversies raised regarding cryptocurrency regulations.
Decentralized trading platforms: disadvantages
Difficulty in use and access
Understanding how to navigate and use a decentralized trading platform can be a challenge for first-time users. Processing fees, liquidity pools, wallets, and slippage all represent potential hurdles that the user needs to overcome. It will take time to confidently understand how a decentralized trading platform works and how to invest responsibly and you should always understand your tools.
Inability to convert digital currencies into approved local currencies and vice versa
Purchasing your first coin or token has historically been one of the biggest barriers to gaining exposure to cryptocurrencies. Centralized trading platforms now offer, as standard, credit and debit card options for purchasing cryptocurrencies. Although some decentralized trading platforms have begun to offer this service in cooperation with third-party providers, most of them still do not allow the use of credit or debit cards.
Liquidity difficulties
Decentralized trading platforms have smaller sizes, on average, and less liquidity than large centralized trading platforms. The market depth can be smaller and the price impact may be greater if large trades are made on a decentralized trading platform, compared to a centralized trading platform. Traders or investors who place large orders can often find a better price by trading off-platform or using a centralized trading platform that has a large order list such as Binance.
Should I use a decentralized trading platform or a centralized trading platform?
By far, the easiest experience for beginners in the world of cryptocurrencies is to use a centralized trading platform, as it eliminates the initial learning curve associated with decentralized blockchain infrastructure. If you encounter any problems while using the Central Trading Platform, the support team will help and guide you as much as possible,
Overall, there are fewer chances of making an irreversible error when using a centralized trading platform, such as losing access to your funds or transferring them to the wrong address. Therefore, if you are just getting exposed to cryptocurrencies for the first time or prefer a more direct and convenient service, We suggest you use a centralized trading platform.
On the other hand, a decentralized trading platform is an excellent gateway to the world of decentralized finance (DeFi). By having one wallet that supports running the Ethereum Virtual Machine (EVM), you can explore the great world of DeFi. The decentralized trading platform is a versatile option for experienced cryptocurrency users and allows them a great deal of freedom.
If you are looking to invest in a comprehensive range of new projects with low market caps, a decentralized trading platform is also your best option. While centralized trading platforms often launch new tokens, decentralized trading platforms still facilitate the majority of new token sales and liquidity.
To help you decide quickly, please review the following use cases for each trading platform type, keeping what we mentioned above in mind:
Concluding thoughts
If you are thinking about trying a decentralized trading platform, we recommend that you do your own research beyond what is mentioned in this guide. Although the benefits may seem attractive to some, we advise you to ensure that you fully understand how to use the decentralized trading platform and its associated tools.
For more information on the topic, please see the article What is a decentralized trading platform? . If you are satisfied with the services provided by the central trading platform you are using, there is no need to switch to another. For many, a centralized trading platform offers the right balance of ease of use and availability of support.
