When it comes to cryptocurrency trading, users may exchange digital assets in two ways: through centralized platforms or directly with one another via peer-to-peer (P2P) networks. Both ways allow you to purchase and sell cryptocurrency, but their functionality and level of control varies significantly.
Centralized exchanges (CEX)
1. How it works: All trades pass via a central authority (the exchange). Buyers and sellers submit orders, and the exchange matches them.
2. Control: The Centralized exchange stores user funds in custodial wallets.
3. Speed: Internal order books allow for faster execution.
4. Risks: It include hacking, withdrawal limitations, and the exchange's ability to freeze accounts.
P2P exchanges
1. How it works: Buyers and vendors are directly connected. No central authority controls funding.
2. Process: Seller lists cryptocurrency with price and conditions.
3. The buyer picks the offer: The P2P exchange employs escrow smart contracts to secure the seller's cryptocurrency.
4. Buyers pay immediately: Once payment is confirmed, the cryptocurrency is released from escrow.
5. Control: Users always keep their monies till they trade.
6. Advantages: Increased privacy, worldwide accessibility, and no intermediary.
7. Risks: It include slower transactions, which are dependent on the reliability of counterparties.
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