Crypto Intermediate

What are cryptocurrency exchanges?

Cryptocurrency Exchange

Key Takeaways

  • Platforms (apps and websites) that can be used to trade digital currencies are called crypto exchanges.
  • There are two kinds: A Centralized Exchange (CEX) for crypto trading has a central authority to manage all of its transactions, while a Decentralized Exchange (DEX) relies on blockchain technology.
  • The choice of a crypto exchange should factor in its security features, transaction fees and trading volumes, coins, and user experiences, at the very least.

Think of your first day of school or college. You had a lot of questions swimming around in your head, yes?

That’s how it is with anything new, but especially with crypto and crypto apps. We know, and we’ve got you.

This is your one-stop guide on cryptocurrency exchanges—those platforms (apps and websites) you use to trade digital currencies such as Bitcoin, Dogecoin, and Ether. Such exchanges offer customers like you the tools they need to buy and sell crypto. They usually come with the added benefit of advanced security features. But how do they work, and how do you pick one?

Centralized vs. decentralized currency exchanges

A Centralized Exchange (CEX) for crypto is one where all transactions on it are managed by a central authority. A Decentralized Exchange (DEX), on the other hand, is based on blockchain technology. Such an exchange, therefore, does not rely on centralized control.

Pros of CEXs

  • Reliability: Only one organization manages the CEX at any given time. The company in charge holds the ledger and secures the data. It is responsible for executing the transactions.
  • User-friendliness: Customers can easily convert their fiat money, such as dollars, directly into crypto on such platforms. So in that sense, they are quite user-friendly. But the user interface and customer support make them especially favorable to newbie crypto dealers.

Cons of CEXs

  • Susceptibility to hacking: CEXs are relatively more susceptible to hacking. They hold the digital currency traded on the platform for a relatively short duration while the trade continues. This increases the possibility of hackers making mischief. However, CEX and DEX have both reinforced their security features in recent years. They now store account information offline and have insurance policies to cover digital currency losses in the event of hacking.
  • Transaction fees: Unlike peer-to-peer transactions, centralized exchanges generally charge you higher transaction fees for convenience and services. And the fee may increase with larger amounts being exchanged.

Pros of DEXs

  • Low hacking risk: In DEXs, you are not required to transfer your assets to a third party. Therefore, the risk of the individual and the organization being hacked is minimal.
  • Holding market abuse at bay: Because of its peer-to-peer system, DEXs, in most cases, avoid market manipulation by protecting against false trading.
  • Confidentiality: DEXs do not require you to fill out Know Your Customer (KYC) forms. That means customers get to maintain their privacy.

Cons of DEXs

  • Passwords: DEXs need you to remember the passwords of your wallets. If you for them or lose them, you risk losing your assets permanently.
  • Absence of fiat payments: Fiat currency is distributed and controlled by the national government. DEXs do not allow fiat currencies to be exchanged for digital currency.
  • Lack of liquidity: CEXs simplify about 99% of crypto transactions and are responsible for most of the exchange volume. However, DEXs frequently lack liquidity due to a shortage of capacity. Therefore, it may be challenging to find buyers and sellers when the transaction volumes are small.
Reputed centralized exchanges  Reputed decentralized exchanges

CoinSwitch

Uniswap (V2)

Huobi Global

Token

Binance

Ox Protocol

Kraken

Venus

Bithumb

Sushiswap

Bitfinex

Compound

Bitstamp

BurgerSwap

Kucoin

Curve FInance

FTX

1inch Exchange

BitFlyer

Pancake Swap

How to select the right crypto exchange

Apart from transaction charges, when choosing crypto exchanges, it makes sense to consider the factors below.

Security

The growing popularity of crypto has enhanced the risk of hacking. Leading crypto exchanges such as Binance and Kucoin have been hacked before, and the losses have run into millions of dollars. They generally do reimburse stolen assets, but it’s still best to factor in the possibility of hacks at the onset.

You could try to decrease the risk of coins being stolen by storing them across multiple exchanges. You can also transfer your crypto holdings from the default wallet at your exchange to a secure cold wallet. The latter is safer and more difficult to hack because it is not connected to the internet.

Accessibility

Don’t assume that the crypto exchange of your choice can be accessed in your country or state just because it is available on the internet. For instance, in India, the government is still consulting different stakeholders on how they will treat crypto in terms of tax and legal perspectives.

Coins on offer

Before selecting a crypto exchange, you need to consider the coins on offer for trading. It’s prudent to opt for crypto exchanges that trade in fewer coins.

Liquidity

To guarantee liquidity, ensure that the coins of your choice have adequate trading bulk. Low-volume trading could affect your sales. The process of placing an order and having a low volume in the market is known as “slippage.” Slippage can compel you to buy at a higher price or sell at a lower price than you expected.

User experience

Irrespective of whether you are an expert in crypto trading or not, a website that is easy to navigate is always a plus. A bad interface can turn you off trading itself. Besides, a good interface should help you make quick trades.

Fees and volume

Many exchanges require you to pay a certain amount for protection. But how much should you be willing to pay? After all, there is so much platform-to-platform variation in relation to fees. For example, some exchanges price their transactions at 4%. In contrast, other trading exchanges with minimal guarantees may charge as little as 0.2%. So how do you choose? There are no sure-shot answers, but here is an idea we think is rational: It is likely that a secure trading company would charge some fee on transactions, and if there are many who are paying it (that is, the exchange has a good trading volume), that may be a good sign.

However, no matter how confident you are on a certain exchange, don’t save a lot of coins on it for too long. Trade and get off quickly.

Exchange policy

Before you invest your money in any crypto exchange, you may need to consider the regulatory landscape of that exchange. For instance, one of the main exchanges, Bitfinex, cannot accept United States transactions due to certain regulatory standards.

That’s it for now. We hope you enjoy your trading journey, and of course, we hope you choose CoinSwitch!

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user’s own risk.

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CoinSwitch app today

Scan the QR code below or find us on Google Play Store or Apple App Store.