CEX vs DEX: How big is the difference if you choose wrong?

Recently, someone asked me whether one should trade on a Centralized Exchange or a DEX. To be honest, there is indeed a big difference between the two, and choosing the wrong one can lead to significant issues.

Core Difference: Who Is in Control

CEX (Centralized Exchange) is like a traditional stock exchange, with an intermediary facilitating transactions. You deposit coins, and the exchange is responsible for matching buyers and sellers, taking a commission from each transaction. Want to use their services? First, register and verify your identity, and the exchange will help you safeguard your assets.

DEX (Decentralization Exchange) is different. Transactions are executed automatically through smart contracts, and users exchange directly from the liquidity pool. There are no accounts, no identity verification; you can use it by connecting your wallet. But the cost is: you have to take full responsibility for everything.

Centralized Exchange: Stable but Not Free

The most enjoyable aspect:

• Easy to Get Started - User-friendly interface, supports credit card purchases, and even offers professional trading tools and educational materials.
• Made a mistake, someone will help - Lost funds? Customer service can help you recover; no need to worry about gas fees.
• One-stop service - Trading, lending, NFTs, and spot futures all in one app, transfers are also convenient.

But the risks are not small:

• Easy to be hacked - The Mt. Gox incident is well-known. As a centralized entity, CEX is seen as a juicy target by hackers.
• High Hidden Fees - Transaction fees, withdrawal fees, API call fees… various fees stack on top of each other.
• Not your coins, not your assets - Exchange bankrupt? Your coins might be gone (some people were scammed like this during the FTX collapse)

DEX: Free but Testing People

Attractive points:

• Completely Autonomous - The coins are in your wallet, and no one can touch them. As long as you have the private key secured, the assets belong to you 100%.
• Privacy Guaranteed - No KYC required, data will not be leaked or sold.
• Low Threshold - Only need a wallet + a little bit of coins, anyone in the world can use it.
• More cryptocurrencies available - New coins, small coins, meme coins… If they are not listed on the CEX, they might already be available on the DEX.

But beginners are particularly prone to making mistakes:

• Complex Operations - Gas fees, Slippage, liquidity pools… a bunch of new concepts to learn.
• No fiat entry - Most DEXs do not support direct card purchases of coins; you need to buy them on a Centralized Exchange first and then transfer them.
• Insufficient Depth - Large trades can easily crash the market, and the price slippage is much greater than that of a CEX.
• One misstep leads to eternal regret - Sending to the wrong address or making an operational mistake, no one is there to help you. The coins are just gone.

How to choose? It depends on who you are

Using CEX scenarios: Newcomers entering → Wanting stability → Frequent fiat inflow and outflow → Large amounts of capital → Too lazy to fuss

Scenarios using DEX: Autonomy → Follow new coins → Participate in liquidity mining → Understand technical details → Pursue privacy

Honestly: Most people are better off starting with a CEX. Get familiar with the basics of cryptocurrencies first, and when you truly understand concepts like blockchain, wallets, and smart contracts, then it's not too late to mess around with a DEX. Combining both is actually the optimal choice—using CEX for asset allocation and deposits/withdrawals, while exploring new DeFi opportunities with DEX.

Finally

There is no absolute good or bad; it depends on your needs and risk tolerance. If you choose wrong, the tuition will be very expensive.