Some offers on this page are from advertisers who pay us, which may affect which products we write about, but not our recommendations. See our Advertiser Disclosure. For many crypto investors, the path to digital asset ownership leads through a centralized exchange, such as Coinbase or Kraken.
These platforms are company-managed and make it easy to get started. However, there's another way to trade many cryptocurrencies without a company in the middle of the trade. Decentralized exchanges operate without a go-between, either using software to manage trades against a pool of tokens or through peer-to-peer (P2P) trading.
In this guide, we'll compare decentralized exchanges vs. centralized exchanges, exploring the pros, cons, and use cases for each. (Disclosure: Yahoo Finance has a partnership with Coinbase). A centralized exchange (CEX) is a business that allows users to buy and trade cryptocurrencies. These include well-known platforms such as Coinbase, Kraken, and Binance.
These platforms act as a go-between: You deposit fiat currency, such as U.S. dollars, and can buy crypto from other sellers on the exchange or through the exchange's "easy buy" options. You can also deposit crypto for trading. A small percentage of exchanges only support crypto deposits.
In many ways, a centralized exchange works similarly to a stock brokerage. You log in using a username and password, and the exchange facilitates the trade whether you're buying or selling. Similar to stock trading, most centralized exchanges use an order book that aggregates buy and sell orders to match buyers and sellers.
However, many also offer "quick trade" options in which the exchange handles the trade with a simple button click, and the buyer pays a spread for the convenience of executing the trade quickly. When comparing decentralized exchanges vs. centralized exchanges, one of the key differences centers on custody, meaning who holds your crypto. With a centralized exchange, the platform's operator also manages a crypto wallet on your behalf.
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