Wikipedia defines a Decentralized Exchange as follows:
A decentralized exchange (DEX) is a cryptocurrency exchange that operates in a decentralized way, i.e., without a central authority. Decentralized exchanges allow peer-to-peer trading of cryptocurrencies.
An excerpt from Investopedia defines Peer to Peer Trading as follows:
In the context of currencies, P2P refers to the exchange of currencies that are not created by a central banking authority, and an especially common application is with cryptocurrency exchange networks such as Bitcoin. Currencies that are not traded through a physical exchange, such as through the use of coins and banknotes, are considered virtual currencies. Virtual currencies are transferred between parties electronically.
Peer-to-peer exchanges allow individuals to move currencies from their accounts to the account of others without having to go through a financial institution. P2P networks rely on digital transfers, which in turn rely on the availability of an internet connection. This allows individuals to use computers as well as mobile devices, such as tablets and phones.
Peer-to-peer currencies are not created or exchanged in the same manner as those created by central banks. The creation of new currency, as well as the recording of transactions between parties, is managed through a network of computers that are not maintained by government authority and is thus maintained by the collective. In cryptocurrency exchanges, these distributed ledgers can confer what P2P advocates consider to be a notable security advantage; with transactions recorded on every peer’s network, it is very difficult to overwrite or falsify ledgers in a cryptocurrency exchange.
Let’s start with those definitions. By understanding these, we can form a general insight into the best practices to ensure that we are truly using the DEX appropriately.