Decentralized exchanges (DEX) allow their users to buy and sell cryptocurrencies with no third party involved. These decentralized platforms are not new. Platforms like Waves DEX, BitShares, NXT, CounterParty, and many others have been around for a while. These exchanges all leverage Blockchain technology in order to provide users with a trustless trading experience.
The prospect of fully decentralized exchanges seems to be getting closer to reality every day. There is, however, another solution that has been around for awhile now. The predecessors of decentralized exchanges themselves, peer-to-peer exchanges allow users to buy and sell cryptocurrencies directly from each other using out-of-band payment methods.
P2P exchanges
Peer-to-peer exchanges, however, are as simple as they are convenient. Users are only required to visit the website, create an account, and they can start buying/selling coins.
Peer-to-peer exchanges like Localbitcoins and Paxful allow users to quickly set up an account and buy cryptocurrencies without the need to make a fiat deposit. Instead, payment is done directly to the user in the agreed payment system, and the Bitcoin is then released from escrow to the buyer. This allows users to retain a certain amount of privacy when compared to centralized gateways.
Let me get to the details in a simple manner-
P2P exchange
Decentralization- no central authority
Blockchain is involved for info storage
buy and sell carried out between known entities
Transactions carried out through escrow services
Decentralized exchange
Decentralization- no central authority
Blockchain is involved
buy and sell carried out even between known entities
This is the major link between P2P exchange and Decentralized exchange. Remember, nowadays many DEX platforms are getting developed by integrating Smart contracts and Escrow services. So, escrow services is not restricted to P2P exchange. The only main difference in P2P and DEX would be based on the trade carried out between the known entities in the former and the trade carried out even between known entities in the later case.