What is a decentralised cryptocurrency exchange?

A decentralised cryptocurrency exchange operates in a decentralised manner, without the need of a third party. Decentralised exchanges allow for direct peer-to-peer cryptocurrency transactions to take place online, connecting buyers and sellers. In the absence of a central intermediary, a decentralised exchange employs smart contracts that self-execute under set conditions and record each transaction to the blockchain. Users remain in control of their own private keys, with decentralised platforms being non-custodial. 

Due to some of the issues associated with centralised exchanges, decentralised exchanges are preferred by some users, for instance, the absence of need to transfer any form of cryptocurrency or asset to a third party or intermediary such as the government or bank. In doing so, a user minimises the risk of a third party being hacked, which has occurred many times over the last decade, with high profile centralised exchange hackings including Bitfloor, Mt. Gox, Bitfinex, CoinCheck, QuadrigaCX, KuCoin and most recently Bitmart. Moreover, decentralised exchanges can also prevent certain market manipulation such as fake trading and wash trading as well as provide anonymity due to the nature of peer-to-peer exchange of cryptocurrencies. Some disadvantages of decentralised exchanges include lack of fiat payments and liquidity. Most DEX’s do not provide a platform to swap fiat currencies for digital ones, meaning certain users that do not already hold cryptocurrencies may experience inconvenience.