TP Courses 7 — Difference Between Decentralized and Centralized Wallet

1. The data of the decentralized wallet is synchronized on the blockchain, while the centralized wallet relies on the provider’s own ledger (account).

The assets on the exchange platform is a centralized wallet, and each of deposit & withdrawal need to be audited, and then exchange platform will record these operations on their own ledger(account). After that, every time we deposit/withdraw assets to/from the exchange platform, its ledger (account) will add or deduct assets directly. And this whole process did not happen on the blockchain at all.

2. A decentralized wallet is a platform to manage assets, while a centralized wallet is for storing assets.

The Private Key/Mnemonic of the decentralized wallet is kept by the user, and the assets are completely stored on the blockchain, which means if your private key is lost, the assets cannot be retrieved. The private key of the centralized wallet is kept by the centralized platform. Users do not need to remember the private key. Your account and password (management permissions) are hosted on the centralized server. Therefore, if the decentralized server is attacked by hackers or the provider is a scammer, users’ assets will be in risk even lost.

3. The authority of the decentralized wallet belongs to the user, while the centralized wallet belongs to the platform

The private key corresponding to the address of the decentralized wallet is managed by the user, while the user of the centralized wallet does not obtain the private key. Although the centralized wallet can transfer as well, the owner of the private key can transfer users’ assets or set transfer limits. (For example, suspension of deposit and withdrawal frequently)

4. Decentralized wallets can directly participate in decentralized applications (DApp)

Dapp areas include DeFi, DEX, NFT, Game, Social, etc. Users can connect a decentralized wallet to make related operations directly with DApp contracts and use DApps. However, users of centralized wallets only have permission to deposit and withdraw. Users do not have the relevant authority of the wallet address and cannot interact with the DApp contract, so it cannot directly participate in DApps.