As unpopular as this opinion is, you are not financially asleep just because you bought cryptocurrency. This is because buying on a centralized exchange is no different from buying through a bank.
We got it. Many people in the crypto industry have already figured this out. Centralized Exchanges (CEX) tend to be the easiest way to get cryptocurrency with the least hassle and usually offer a lot of customer support.
This can be an important set of features, especially for those new to cryptocurrency who are confused by the sheer number of options they face when they get their first crypto assets. However, this makes them the model for financial institutions that we already have.
How does CEX look like a bank
Here are some of the differences between CEX and a bank:
- Most of the intuitive user interfaces feel familiar to users who are already using traditional financial applications.
- This is an easy way to enable seamless buying of cryptocurrency from a bank account or credit card (you can call it a fiat crypto on / off ramp).
- There is a company that users can study and do due diligence, perhaps even a CEO they can believe in.
- There is a customer support service with people that users can turn to for help.
- It has significant liquidity – it is unlikely that new users will have an order that CEX cannot fulfill.
What makes DEX different
The opposite of CEX is Decentralized Exchanges (DEX). These are crypto exchanges without intermediaries between the buyer and the seller, using blockchain technology and smart contracts to automatically settle transactions and transactions.
However, usually DEX:
- You don’t have the most user-friendly interfaces.
- Not run by business.
- I have no customer support.
- Lack of deep liquidity.
This makes it clear why CEX continues to be so popular and why newbies tend to buy their first cryptocurrency from them. Perhaps this will continue for a long time, as people will always need some comfort and confidence when trying something new.
However, there are other aspects that people do not take into account when buying cryptocurrency on CEX.
Buying Cryptocurrency Doesn’t Make You a Financial Revolutionary
Since cryptocurrency is not only money, but also a symbol of economic freedom, it is tempting to think of yourself as a freedom fighter for a new financial system by simply buying yourself some cryptocurrency.
However, buying cryptocurrency on CEX means that you are not subscribed to the philosophy of cryptocurrency or the logic of decentralized finance (DeFi).
Almost every aspect of CEX reflects the bank. Choosing CEX services is no different from going to the bank and supporting your business. Thus, strengthen your power in the global financial system.
Some may not have noticed, but the best prices (buy or sell) tend to be on P2P or DEX platforms. With CEX, customers are still getting prices close to the world average, but slightly higher prices due to margin or spread.
Simply put, to pay for the platform and employee maintenance costs, they charge customers more for their purchases and give them less for their sales.
As in real life, when exchanging money, clients receive more favorable rates at independent exchange offices than at banks. The reasons are the same. Banks have expensive infrastructure and employees who need to be paid.
Another way banks and CEX generate income is to charge a commission on every transaction that customers make. Each sale or purchase is usually charged a fixed percentage of the transaction, charged as a commission. For each withdrawal of cryptocurrency from CEX, a withdrawal fee is also charged, just like in a bank.
CEX informs customers that they have to pay a commission to miners, but since withdrawals happen in batches with others, it’s easy to see how low minors’ fees are.
Banks and CEX take full control of funds and accounts. For example, they usually say that they process transactions during a specific period of time or during business hours. Customers can request a withdrawal and wait several hours or even days to process it. Thus, customers have no say in when this happens.
Another example is periods of severe network congestion. Clients have no control over how much CEX will pay miners for transactions. They just have to sit down and hope they pay enough.
Ability to handle
Customers can request that their account be closed, but they have no way of knowing if CEX has removed personal information from their databases. There is no way for clients to know that they are telling them the truth.
Are there thousands of traders on their platforms? Or just bots. Are there high transaction volumes and deep order books? Or are all false data being passed to the system? Do they have any reserves on their balance sheets? Bitfinex’s Tether paid $ 18.5 million to US regulators after it was caught lying about reserves.
This is perhaps the most important point that cryptocurrency buyers at CEX do not realize. They have nothing but a CEX account.
The use of DEX is a statement for cryptocurrency.
Crypto is more than money, it is a philosophy of financial freedom. However, with CEX, clients often lose some of these freedoms and control. Only DEX offer:
- Freedom to quote a price that you want to buy their assets. Don’t like the offered price? Submit yours on DEX.
- The freedom to choose the fees or amounts that will be paid to network validators to validate and confirm transactions. Do you need it urgently? Then pay a premium. Do you want to wait? Then pay less for gas.
- Freedom to control the use of money. Do you want to delete your account? Well, clients don’t even need that with truly decentralized DEXs.
- Freedom of property. With DEX, you can always control your funds through non-storage interfaces. You never need to log into your cryptocurrency. They never leave your wallet unless you put them on, spend, save or exchange them.
Crypto and DeFi are opening up so many new opportunities for people every day, giving more and more access to finance to those who are usually denied by banks and CEX.
Using CEX is perfectly fine. However, if you are looking for more control over your crypto finance, DEX may be the best option.
All information on our website is posted in good faith and for general information purposes only. Any actions that the reader takes with the information on our website are done solely at their own risk.