The first successful cryptocurrency, Bitcoin, was invented at least in part as a way to prove that centralized control of money was no longer necessary. Since fiat currencies like the dollar are no longer backed by tangible resources like gold all you have to do is get enough people to agree that your new currency has value for it to have value. And the best way to do that is to establish trust.
The blockchain and its incorruptible ledger was how that trust was established, and as a result, a brand new form of decentralized currency was created; one freed of the machinations and manipulations of central banks and other powerful, corruptible players.
Today, Bitcoin and its 1,400 imitators are redefining finance and attracting the interest of investors, speculators and merchants the world over. Most of those investors and speculators enter the world of the cryptocurrency through exchanges, of which there are two types in operation today: the centralized exchange and the decentralized exchange.
While both have their merits, most crypto purists are drawn to the decentralized model simply because its structure is more in keeping with the regulation-free, fee-free ethos behind the rise of the cryptocurrency.
A centralized exchange is a for-profit private company that facilitates the procurement and trading of cryptocurrencies. Its main benefits are convenience related. Essentially, all you have to do is open an account, and you can begin buying and selling cryptocurrencies. You're also able to buy them with most fiat currencies like the dollar and the euro.
Centralized exchanges tend to run afoul of crypto purists because they charge fees for their services.
This is in direct opposition to the guiding principle behind the invention of the cryptocurrency that money would finally be free of institutions like the Fed that install themselves as a kind of toll plaza between money and the people. It's this relinquishing of control to a 3rd party that may or may not have your best interests at heart that gauls many and is behind the popularity of decentralized exchanges.
Unlike the centralized model that requires you relinquish control of your transactions to a third party, the decentralized exchange is a peer to peer service where all transactions are direct. There are no fees and no having to turn over assets to a centralized authority before a transaction can be completed. This type of exchange aspires to uphold the ideals behind the creation of cryptocurrencies. And for the most part, it does so. But, besides being more idealistically pure what are its other, practical benefits?
Nothing is without its downside and that goes for decentralized exchanges too. Here are some of the risks associated with this type of exchange.
Although they can't compete with the trading options provided by their centralized cousin, decentralized exchanges continue to attract fans because they tend to express the spirit behind the creation of the cryptocurrency better.