Beginner’s Crypto Guide: Centralized Exchanges (CEXs) vs Decentralized Exchanges (DEXs)

TL;DR: Centralized exchanges (CEXs) offer user-friendly interfaces, fiat-to-crypto conversions, high liquidity, and advanced trading tools but require identity verification (KYC) and custody of your assets. Decentralized exchanges (DEXs) provide greater privacy, self-custody, and access to niche tokens, but can be more complex to use, lack fiat options, and face multi-chain swapping challenges. Choose a CEX if you’re new to crypto, trade frequently, or require fiat on/off ramps. Opt for a DEX if you value privacy, self-custody, or want access to exotic tokens.

1. CEX or DEX? Where to start when you are ready to buy crypto?

When you decide to start trading cryptocurrency or allocate a portion of your savings into BTC and ETH as a long-term investment (called Hodl), the first question to ask is: where should you go for your initial trades? There a two distinct options:

Centralized Exchanges (CEXs) are cryptocurrency trading platforms managed by a central authority or company. They act as intermediaries, holding user funds and facilitating trades.

Decentralized Exchanges (DEXs) operate without a central authority. Trades occur directly between users through blockchain-based smart contracts, allowing users to retain full control over their assets.

2. Biggest and Most Popular Platforms

Binance remains the largest CEX by volume, while Uniswap leads among DEXs.

3. Key Differences of CEX vs DEX

3.1 Onboarding and User Interface

• CEX: Beginner-friendly, easy-to-use interfaces, similar to traditional financial platforms.
• DEX: Typically less intuitive; requires familiarity with crypto wallets and blockchain concepts.

3.2 Customer Support

• CEX: Offers dedicated customer support via email, chat, or phone.
• DEX: Limited or no direct customer support; users rely on community forums or documentation.

3.3 On-ramps and Off-ramps

• CEX: Allows easy conversion between fiat currency (e.g., GBP, USD) and crypto.
• DEX: Usually no direct fiat options; users must first purchase crypto elsewhere before using a DEX.

This could be a critical consideration for new crypto buyers: if you don’t already own any cryptocurrency, using a centralized platform with fiat on-ramp services might be your only option to get started. More on this topic here.

3.4 Liquidity, Fees, and Variety of Trading Tools

3.5 KYC, AML, Tax Compliance

• CEX: Requires identity verification (KYC), complies with anti-money laundering (AML) regulations, and reports user activities to tax authorities. Many countries require CEXs to obtain national licenses prior to offering their services.
• DEX: Usually no KYC required; provides greater privacy but users remain responsible for reporting crypto transactions for tax purposes.

3.6 Custody vs Self-Custody

• CEX (Custodial): Holds your crypto assets on your behalf; convenient but involves trusting the exchange with your funds.
• DEX (Self-Custody): Users maintain full control over their assets through personal wallets; greater security responsibility.

Please refer to our guide on types of crypto custody options here.

3.7 Multi-chain Challenges: Why It’s Hard to Swap Across Chains

DEXs operate on specific blockchains (e.g., Ethereum-based Uniswap or Solana-based Raydium). Swapping tokens across different blockchains (like SOL on Solana to ETH on Ethereum) is challenging because each blockchain has its own infrastructure and standards. Users must rely on bridging services or specialized cross-chain protocols like THORChain or EasyBit, adding complexity and extra steps.

CEXs, on the other hand, offer cross-chains swaps like BTC to ETH hassle-free. The only requirement is that tokens users want to swap are listed on a CEX.

4. Simple Algorithm: Choosing Between a CEX and a DEX

Follow this simple decision-making algorithm to choose the most suitable exchange type:

1. Technical Expertise

   • Beginner → CEX
   • Familiar with crypto wallets → Consider DEX

2. Privacy Preferences

   • Comfortable sharing personal details → CEX
   • Prefer anonymity → DEX

3. Fiat Conversion Needs

   • Regular fiat deposits/withdrawals → CEX
   • Primarily crypto-to-crypto trading → DEX suitable

4. Liquidity & Trading Frequency

   • Frequent trading with minimal slippage → CEX
   • Occasional trading or tolerance for higher fees → DEX acceptable

5. Cross-chain Swaps and Access to Exotic Tokens

   • Mainstream cryptocurrencies only → Both suitable
   • Need a lot of cross-chain swaps → CEX
   • Interested in niche or newly-launched tokens → Choose DEX for broader token availability

Conclusion: Tax Reporting Made Easy with DeCrypto.tax

Whether you choose a centralized or decentralized exchange, remember that cryptocurrency transactions often have tax implications depending on your jurisdiction. If you’re required to declare and pay taxes on crypto gains, DeCrypto.tax simplifies this process:

• For CEX users, easily connect your exchange accounts via secure API keys.
• For DEX users, simply connect your wallet addresses directly to DeCrypto.tax to accurately track and report transactions.

With DeCrypto.tax, managing your crypto taxes becomes straightforward - no matter which type of exchange you prefer.