Hi It's Unicorn

We can distinguish between centralized exchanges and decentralized exchanges according to the modern trading environment. These two types of exchanges are brand new concepts pioneered by cryptocurrency trading.

Centralized Cryptocurrency Exchange (CCE) is a relatively common type of exchange, such as Binance Exchange, Huobi... etc., which are all centralized types. Centralized exchanges are like traditional financial companies or banks. This kind of centralized exchanges are operated by a company that needs to bear the operating, risk, personnel costs, etc.

The important thing is that the centralized exchange will require you to register an account and create a custodial wallet through KYC real-name authentication. The private key of the wallet is entrusted to the platform account, which contains transaction records of various assets. When two people trade on the exchanges, they are not actually trading directly with each other. On the contrary, the centralized exchange is the trading party. Centralized exchanges act as intermediaries to match requests between buyers and sellers of cryptocurrency. This concept is like order matching. CEX controls the order book and the user's funds. The centralized exchange is responsible for maintaining the security of users' funds and protecting it from hacker attacks. 

Most of the liquidity of the cryptocurrency is in centralized cryptocurrency exchanges because they are generally easy to use. Users do not need to manage the keys by themselves, and don’t need to learn or understand complicated wallets. They only need an email and a password to start a transaction. However, It may be dangerous because all funds are stored in a centralized place. It’s easy to be a target of exchange hacking. Therefore, trusting the exchange as a good custodian has become a very important factor.

What is a Decentralized Exchange (DEX)?

DEX is an exchange based on blockchain technology. This type of decentralized exchange will not store user funds and personal data in the exchange’s cloud data. It is just a software to match transactions between buyers and sellers. The user's funds will not be entrusted to a third party. Users are the custodians of their own funds, and their assets are placed in their own hot wallets and cold wallets. The order is directly matched between traders, and then transmitted through the inter-chain network for direct peer-to-peer settlement. Hence, the exchange  cannot control your personal data and assets and there  is no KYC real-name authentication. Users are completely anonymous. In addition, decentralized exchanges are not easily attacked by hackers.

Since DEX is a platform for direct transactions between trading parties, DEX does not hold every investor's funds in the exchange wallet. Users on DEX have custody of their own funds, wallets and private keys. There is no centralized organization that can prevent user transactions or freeze user accounts. However, if the user loses access to the account or loses the key, there is no central authority that can restore access.