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Introduction to DEX, Metamask, and Uniswap.

CEX vs DEX, crazy huh?

Summary Decentralized Exchanges are like the usual, centralized exchanges, with the added benefit that the trade takes place between two users, with little or no involment from a third party.

Let us start by first talking about Centralized Exchanges.

Centralized Exchange (DEX)

The usual crypto exchange known to us is usually centralized. Meaning that we use a third party, such as Luno, to trade our bitcoins. This allows buyers and sellers to meet in a commonplace.

We usually deposit money on this centralized exchange and buy/sell cryptos. This purchase can be done either using fiat money or with cryptocurrency. When you deposit or buy crypto, you give up some form of control. You can trade and withdraw your crypto, but you may not be able to spend it.

You also do not own the “private key”. When you withdraw your crypto, you are asking the exchange to do this transaction for you. When you are trading on the exchange, the transactions do not occur on the blockchain. These transactions are stored on the exchange’s database. This exchange acts as a third person.

This means that you NEED to trust the exchange with our money. You need to find an exchange with a strong track record. But, what if the exchange becomes hacked?

These exchanges also provide you with additional functionalities such as storing your cryptos.

Decentralized Exchange (DEX)

These exchanges run purely on the blockchain. Every order to trade is written on the blockchain. This means that you do not have to use a third person (a centralized exchange) to store any information.

These exchanges can use smart contracts (orders executed on the blockchain) and you keep control of your funds. The problem with this is that is a bit impractical. This is because you will need to wait for the blockchain to add your transaction to the network. You will also be asking every node on the network to record your transaction. The other problem is that if a miner sees the transaction before it is executed/confirmed, they can ensure that their transaction gets added to the blockchain before yours. This is called an on-chair order book. There is also another type called the off-chain order book.

List of DEX

Uniswap – Ethereum based DEX, created in 2018 by former Siemens mechanical engineer Hayden Adams. Charges 0.3% fee for swapping ERC-20 tokens.
SushiSwap – apparently, created by “Chef Nomi” while copying Uniswap’s open-source code. Fees are 0.3% as well.
PancakeSwap – also a clone of Uniswap, but allows users to trade BEP-20 tokens.

DEX Pros & Cons

Pros

1. No KYC/AML (Know Your Customer/Anti-Money Laundering) – this is when you need to submit a copy of your ID and proof of address. Imagine not having to do this? Endless possibilities lol.

2. You keep control of your own funds – Thus, a hack on a major exchange won’t affect you much.

3. You can traded unlisted tokens not yet listed on a centralized exchange.

Cons

1. It’s more cumbersome to use – for instance, if you forget your password in a CEX, you can just change it. If you loose your seed phrase for your DEX, you will not be able to retreive your coins.

2. DEX makes it abit more difficult to buy and sell assets, therefore it has a little bit less liquidity.

CEX vs DEX, crazy huh?

Centralized Exchange (DEX)

Decentralized Exchange (DEX)

List of DEX

DEX Pros & Cons

Other Topics

Metamask

Uniswap

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