Is Binance centralized or decentralized

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Is Binance Cex or Dex? This article gives a clear explanation of the Binance platform, the BSC chain, and the decentralized nature of cryptocurrencies.

Binance is the largest and most popular crypto exchange in the world and this isn’t going to change anytime soon. In fact, Binance is a typical cryptocurrency exchange where you can buy or sell cryptocurrencies.

Even though blockchain technology and cryptocurrencies are known for their decentralized nature it doesn’t mean that crypto exchanges share the same ideology. Moreover, since 2017, Binance has operated as a centralized platform where users can sign-up and use it as such.

Therefore, it is safe to say that Binance is a centralized platform where anyone needs to create an account first, before using its services.

This article gives a deeper explanation of the meaning of a CEX like Binance versus a DEX. And also what the main differences and advantages are.

What does a CEX like Binance mean in Crypto?

Binance is a centralized exchange because it acts as a middleman and holds users’ funds in a central location. Meaning, you have to deposit your crypto in custodial wallets that are handled on their platform.

This is in contrast to a decentralized exchange (DEX), which allows users to directly exchange cryptocurrencies with each other. All this without the need for a central authority.

Technically speaking, Binance may offer some decentralized features. Such as using multiple servers distributed across different locations to ensure the availability and security of the platform.

However, the fact remains that it holds users’ funds in a central location and requires users to deposit and withdraw their funds through the exchange.

So if you’re still wondering ‘is Binance centralized or decentralized’. Binance holds users’ funds on its platform and is therefore considered a centralized cryptocurrency exchange.

Binance custodial wallet service
The Binance custodial wallet service

Binance Centralized or Decentralized? Here are 5 Key Differences between a CEX and a DEX

A decentralized crypto exchange is a type of cryptocurrency exchange that does not rely on a central authority to facilitate the buying and selling of cryptocurrencies. Instead, it uses blockchain technology and smart contracts to enable users to directly exchange cryptocurrencies with each other in a secure and transparent manner.

This is different from a centralized exchange, which acts as a middleman and holds users’ funds in a central location. Because decentralized exchanges do not hold users’ funds, they are often considered to be more secure than centralized exchanges. Below 5 main differences between a CEX and a DEX,

#1 Account Setup

CEXs typically require users to create an account and go through a verification process(KYC) before they can start trading on the platform. This can be time-consuming and may require users to provide personal information and documents.

In contrast, DEXs often do not require users to create an account and can be accessed directly through a web browser or a blockchain wallet. Meaning, you just connect a Web3 wallet like Metamask where you are in control of the funds.

#2 Deposit and Withdraw Funds

CEXs like Binance, require users to deposit their funds with the exchange before they can start trading. This way Binance is responsible for the security and safety of the funds and has to take security measures. Also, depositing funds can be done through a variety of methods, such as bank transfer or credit card.

DEXs, on the other hand, do not require users to deposit their funds with the exchange. Instead, users can connect their own cryptocurrency wallets to the DEX and trade directly from their own wallets.

#3 Money can’t be used on a DEX

The big benefit of a platform like Binance is that you can transfer funds through a bank account or using a debit or credit card. Also, you have several trading pairs where you can directly trade fiat currency for crypto.

DEXs like Uniswap won’t work like this. If you want to use these platforms you have to own cryptocurrencies first. Of course, you can also use stablecoins, but trading USD or EUR won’t work here. On top of that, if you want to cash out from crypto with Metamask; you need a third-party exchange like Binance to do this.

#4 Selection of Cryptocurrencies

CEXs often have a larger selection of cryptocurrencies available for trading, as they typically list a wide range of coins and tokens. Binance has more than 350 different coins listed and will list more in the years to come.

DEXs, on the other hand, may have a more limited selection of cryptocurrencies, as they typically only allow users to trade the tokens that are supported by the underlying blockchain. Meaning DEXs depend upon the underlying blockchain technology(Ethereum, Polkadot, or Solana) and can only use coins that support these.

#5 User-friendly Features

CEXs often offer a variety of user-friendly features, such as advanced trading tools, user-friendly interfaces, and support for multiple languages. Binance for example uses a wide variety of services besides just trading cryptocurrencies.

DEXs, on the other hand, may have a more basic interface and may not offer the same level of user-friendly features as CEXs.

Are decentralized exchanges Safe? Are there any risks?

It is generally considered that decentralized exchanges (DEXs) are more secure than centralized exchanges (CEXs) like Binance. This is because DEXs do not hold users’ funds in a central location, which reduces the risk of those funds being hacked or stolen.

Instead, users connect their own cryptocurrency wallets to the DEX and trade directly from their own wallets. This means that users are in control of their own funds and are not reliant on the security measures of the exchange.

However, it is important to note that DEXs are not immune to security risks. Meaning, users are still responsible for securing their own wallets and protecting their private keys.

Also, one of the main risks of using a DEX is the lack of liquidity. On Binance, trading volumes are very high because they have millions of users on a daily basis. Meaning, if you want to sell a smaller crypto like $ZIL, big chance your order will be executed immediately.

On the other hand, there is the nature of a DEX. Meaning decentralization creates a fragmented market and there could be gaps between supply and demand. A market order is hard to settle and the price you sold an asset for can be different from the price you intended to sell.

How can Binance have a decentralized cryptocurrency called BNB?

Again, Binance is a centralized platform where cryptocurrencies can be traded. Also, the nature of a crypto coin is that they are decentralized and only runs on a decentralized network.

So, what about this BNB coin which is created by Binance?

Consequently, Binance is a centralized exchange for cryptocurrencies, which means that it acts as a middleman for buyers and sellers to trade cryptocurrencies. Binance Coin (BNB) is the native cryptocurrency of the Binance platform.

While Binance is a centralized entity, BNB is a decentralized cryptocurrency that runs on the Ethereum blockchain using the ERC-20 token standard. This means that BNB is not controlled by any central authority and is instead governed by the rules of the Ethereum network.

In other words, the Binance BNB coin runs on the Ethereum blockchain and is created as such. The Binance platform and the trading engine is a totally different computer network systems.

What is the Binance Smart Chain?

Binance Smart Chain (BSC) is a decentralized, open-source blockchain platform that is developed by Binance. In particular, BSC is built on top of the Ethereum Virtual Machine (EVM) and is designed to be fully compatible with Ethereum’s ecosystem. Including its tooling and protocols.

Ethereum Virtual Machine(EVM)
Ethereum Virtual Machine(EVM)

BSC has its own native cryptocurrency, called Binance Coin (BNB). BNB is used to facilitate transactions on the Binance Smart Chain and can be used to pay transaction fees. Also, to participate in decentralized finance (DeFi) protocols, and more.

One of the key features of BSC is its high transaction speed and low fees, which make it attractive for developers and users. Because they want to build and use decentralized applications (DApps). BSC also supports smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.

Overall, Binance Smart Chain is an important player in the cryptocurrency and blockchain space, and BNB is a widely-used and highly-valued digital asset.

Binance fees vs DEX gas fees

Finally, the fees. Is trading on a DEX cheaper than if you trade on Binance? Particularly, if you are using a DEX like Uniswap you have to pay gas fees for using it.

DEX gas fees are fees that users of decentralized exchanges (DEXs) must pay in order to use the Ethereum network to buy, sell, or trade cryptocurrencies. These fees are paid in Ethereum’s native cryptocurrency, ether (ETH), and are used to compensate the miners who process transactions on the Ethereum blockchain.

Recommended read: 5 Reasons why Binance is good for beginners.

DEX gas fees are typically lower than the fees charged by centralized exchanges, as decentralized exchanges do not have to cover the overhead costs of running a centralized organization. The amount of DEX gas fees vary depending on the current demand for Ethereum network resources and the amount of data being processed in a transaction. Remember that these fees are variable and depend on the amount of network traffic. The trading fees for doing orders on Binance are constant and set at a rate of 0.01% per trade.

Conclusion: Is Binance Decentralized or Centralized

In this article, I covered the basics according to Binance and the decentralization nature of blockchains. It must be clear now that the platform acts as a middleman to trade cryptocurrencies which are all decentralized in nature.

By being a third-party provider, trading on Binance comes with extra hurds like KYC, trading fees, and custodial wallets. Of course, Binance is a respected platform and offers a lot of extra services in return.

Decentralized platforms(DEXs) like Uniswap don’t have to deal with KYC and custodial wallets. Using these platforms allows you to control your keys and funds. In the end, it is up to you to decide which option suits you best. Take care!

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