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Centralized exchanges (CEX)
A centralized exchange functions similarly to traditional brokerages or stock markets. The exchange is operated and owned with a centralized authority that maintains complete control over every account and those account’s transactions. All transactions on the centralized exchange should be authorized by the exchange; this requires that most users place their rely upon an exchange operators’ hands.




Advantages
Liquidity: Liquidity of your asset is the term for its capacity to be sold without causing much price movement and minimum loss of value. Liquidity is vital for the utmost safety against market manipulation, including coordinated “pump-and-dump” schemes. Centralized exchanges are recognized to have greater liquidity than other types of exchanges.
Recovery possible: Most centralized exchanges offer the benefit of having the capacity to verify a users’ identity and recover entry to their digital assets, when the user lose or misplace their login credentials.
Speed: Transaction speed matters for many types of cryptocurrency traders; it’s so very important in high-frequency trading, where milliseconds count. Depending on an analysis by bitcoin.com, when compared with other kinds of exchanges, centralized exchanges handle transactions faster, with an average speed of 10 milliseconds.

Disadvantages
Honeypot for hackers: Centralized exchanges have the effect of huge amounts of trades per day and store valuable user data across centralized servers. Hackers prefer on them other kinds of cryptocurrency trading platforms that is why alone – essentially the most notorious hacks happen to be geared towards centralized exchanges, including Mt.GoX, BitFinex, and Cryptopia.
Manipulation: Certain centralized exchanges have already been accused of manipulating trading volume, taking part in insider trading, and performing other acts of price manipulation.

Decentralized Exchanges (DEX)
Unlike centralized exchanges, decentralized exchanges (also referred to as a DEX) behave as autonomous decentralized applications running on public distributed ledger infrastructure. They permit participants to trade cryptocurrency with out a central authority.

Centralized exchanges will often be limited to participants within certain jurisdictions, require licensing, and enquire of participants to confirm their identity (KYC: “know your customer”). In comparison, decentralized exchanges are fully autonomous, anonymous, and free of those same requirements. Several decentralized exchanges exist today, which we can easily categorize into three types: on-chain order books, off-chain order books, and automated market makers.

Advantages
Custody: You will find there’s famous saying in distributed ledger communities, “Not your keys, not your crypto.”: digital assets and cryptocurrencies are owned by whoever possesses the secrets to a free account that holds those digital assets. As DEXs are decentralized, with no single entity owns them, users control their private keys in addition to their digital assets.
Security and privacy: Since users usually are not needed to proceed through KYC to create a free account with a decentralized exchange, users may be well informed the privacy is preserved. Regarding security, most DEXs employ distributed hosting and take other security precautions, thereby minimizing potential risk of attack and infiltration.
Trustless: A users’ funds and personal data are under their own control, as nobody except a persons can access that information.

Disadvantages
Low liquidity: Even top decentralized exchanges have trouble with liquidity for several digital assets – lower liquidity makes it much simpler to overpower markets with a decentralized exchange.
Blockchain interoperability: Trading or swapping two digital assets that you can get on a single distributed ledger is often a not at all hard procedure using a DEX; trading two digital assets that you can get on two different distributed ledgers can show incredibly challenging and need additional software or networks.

Hybrid Exchanges
A hybrid exchange combines the strengths of both centralized and decentralized exchanges. It facilitates the centralized matching of orders and decentralized storage of tokens – therefore a hybrid exchange cannot control a users’ assets and possesses no way to prevent someone from withdrawing funds. Simultaneously, a quick centralized database manages order information and matching trades instead of using potentially slow blockchain infrastructure.

Advantages
Closed ecosystem: A hybrid exchange can be employed in a closed ecosystem. Organizations can tell in the privacy of their information while using blockchain technology.
Privacy: Private blockchains are primarily used for privacy-related use cases to acquire limiting communication using the public. A hybrid exchange can safeguard a company’s privacy while still letting it contact shareholders.

Disadvantages
Low Volume: Hybrid exchanges only have been with us for a short while. They just don’t yet contain the necessary volume to become go-to platforms for buying and selling digital assets. Low volume ensures they are a straightforward target for price manipulation.


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