One of the core ideals of the cryptocurrency sector is the decentralization movement. The idea of moving away from centralized systems is becoming the new norm. The 'Not your keys, Not your coin' revolution gave birth to the notion of decentralized exchanges (DEX) for <a href="https://www.cryptoknowmics.com/news/tabtrader-is-redefining-the-future-of-cryptocurrency-trading/">cryptocurrency trading</a>. Because DEXes provides the user complete control, they have spawned a booming market.

But there's more to it than meets the eye. Given the multiple risks associated with centralized exchanges, DEXes may be enticing to many. When you encounter the words' exchange hack,' what do you think of? For many crypto users, it's either curiosity about which exchange was compromised or panic if they use or have funds on it. These stories, however, are rather regular in the sector, and a few attacks are practically expected every year.

These attacks are not confined to small exchanges; several of the industry's largest exchanges, such as Binance, have experienced security breaches at some point. These can have disastrous consequences since millions of dollars in company funds have been lost as a result. They do, however, highlight a critical problem in the centralized exchange currency system.

With all the issues that are associated with centralized exchanges, cryptocurrency users are leaning more towards decentralized exchanges these days.

So, what exactly is a decentralized exchange, and how does it differ from its centralized counterparts?

A decentralized exchange, in its most basic form, provides a new type of pair-matching service, enabling traders to place orders and trade currencies without the need for an intermediate entity to manage the funds.

This decentralized dynamic system enables rapid transactions, often at a significantly lower cost than what is available on centralized crypto exchanges, due to its reliance on self-executing smart contracts.

Centralized exchanges require clients to make deposits and then issue an IOU (which stands for "I owe you" and refers to a document acknowledging a debt owed by one party to another) that is freely traded on the exchange. These IOUs are converted to cryptocurrency and handed to the beneficial owner when a client requests a withdrawal.

Furthermore, centralized cryptocurrency exchanges hold the crypto assets of their clients, which may include both the buyer and seller and control the private keys necessary to access the funds.
<h2>Why Should You Use a Decentralized Exchange (DEX)?</h2>
To begin with, the option to retain your private keys is seen as a critical feature for privacy-conscious users who want complete control over their crypto assets. In the centralized exchange architecture, one entity manages users' private keys and facilitates transactions. A decentralized exchange, on the other hand, allows users to trade cryptocurrencies on a distributed ledger while preserving control over their own private keys and money.

Second, decentralized exchanges have substantially lower, and in many cases nil, fees than centralized exchanges. Decentralized exchanges may substantially reduce prices because of an innovation known as Automated Market Makers (AMM).

When employing AMMs, the traditional order book is substituted with liquidity pools that are pre-funded for both crypto assets in a trading pair. The liquidity is supplied by a network of users, who can earn passive income on their deposits through trading fees based on their share in the liquidity pool.

A crypto custodial service is now a standard feature of every central exchange. This implies they manage the crypto assets of their users, and because large amounts of cryptocurrency are housed in one spot, centralized exchanges are vulnerable to attacks. Decentralized exchanges are not appealing targets for such attacks since they do not retain funds.

A DEX distributes custody throughout the whole user base, making attacks significantly more costly, less lucrative, and far more difficult. Because the funds are totally managed by the individual users, the lack of an intermediary also suggests that most DEXs have little counterparty risk because the funds are fully controlled by the individual users, giving the individual crypto traders complete independence and authority.
<h2>Problem with DEXes!</h2>
While decentralized exchanges have some advantages, they also have a few drawbacks.

Cryptocurrency exchanges are an important source of liquidity for the global cryptocurrency market, facilitating daily trades worth tens of billions of dollars. If you've purchased cryptocurrencies in the past, you've almost certainly done it using exchanges such as WazirX and Binance. This is because these platforms are easily accessible, easy to use, and has the option to use fiat currencies to purchase crypto assets. That's not the case with DEXes since they are all crypto-crypto platforms. So, first, you need to purchase a cryptocurrency, say Bitcoin, and transfer it to the DEX to be able to start investing.

Furthermore, DEXs may look fairly complicated to an inexperienced eye. Also, a user must properly handle his or her private keys and funds, which is often inconvenient and costly for many users. As a result, there may be an intellectual barrier to entry when it comes to DEXes.

Another significant disadvantage of decentralized exchanges is the limited trading capabilities. How? The DEX risks of slower transaction settlement speed might make trading on DEXs more difficult. Furthermore, decentralized exchanges with an emphasis on easy buying and selling orders have just recently gained popularity. Additionally, users can't find complex trading functionalities like stop losses and margin trading on the majority of decentralized exchanges.

But that doesn't mean nobody is using these decentralized platforms. In November last year, the trading volume on DEXes went as high as $205 billion. Furthermore, there are more than 15 different DEXes that exist today. This goes to show the immense progress that has been made in this regard.
<h2>Closing Note</h2>
The market for DEXes is fairly new, and most of the problems that exist currently stem from this very fact. The crypto industry is constantly evolving, and the same can be said for DEXes. So to answer the question of whether or not you should use Decentralised exchanges currently depends on your technical knowledge. If you can work your way with the technicalities, then trading DEXes is definitely a great option for you or any privacy enthusiast.

Should You Use a DEX in 2022?

The 'Not Your Keys, Not Your Coin' revolution gave rise to the notion of decentralized exchanges (DEXs) for cryptocurrency trading. We recommend DeFi Swap as the top decentralized exchange in 2022. With DeFi Swap, you can trade over 45 DeFi coins and earn interest simultaneously through the platform's automatic liquidity pool. ,

Rony Roy is an electrical engineer turned tech author in the Cryptocurrency space. He got block-chained in 2012 and fell in love with tech and its use-cases and has been writing his way through innovations in this emerging sector. Over the years, he has worked with multiple Blockchain projects and premier cryptocurrency exchanges both national and international.

Should You Use a DEX in 2022?

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