The crypto world is oozing, which has led to obvious popularity in cryptocurrency exchanges as they basically facilitate cryptocurrency trading as well as fiat currency. It wouldn’t be wrong to say that they act as an intermediary between sellers and buyers and for making money through transaction fees and commissions.
What Is A Cryptocurrency Exchange?
The crypto exchange is a medium where one can sell and purchase cryptocurrency. These exchanges can be used for trading one currency for another – to illustrate, you can convert Ethereum to bitcoin or others. In fact, you can also buy cryptocurrency with the help of fiat currency.
The exchanges can reflect the market prices of these digital currencies and also allow the users to turn cryptocurrency into fiat currency. It leaves the currencies as cash within the exchange account or simply withdraws to the conventional bank account.
As far as the “best” exchange is concerned, there is not one because the final choice will depend on personal interests. In addition, it is important to select the exchange that aligns with the crypto goals. For instance, every exchange doesn’t support all cryptocurrencies, and not to forget, you might have to shift from one exchange to another as you dig deeper into the crypto world. So, if you want to start your journey with cryptocurrency and trading, you should register for an open account now.
Understanding The Difference Between Decentralized & Centralized Exchange
Here are some differences between decentralized and centralized exchange:
Centralized cryptocurrency exchanges generally operate as third-party between sellers and buyers. This is because they are controlled, maintained, and operated by the company, leading to higher reliability. In the majority of cases, the centralized cryptocurrency exchanges make up 99% of the exchange industry and some of them include Coinbase, Kraken, Gemini, and GDAX. Some of the benefits include the following.
- These are more suitable for beginners as the user interface is easier and provides a convenient way of investing and trading cryptocurrency. The users can easily log in to their accounts, check out the account balance, and make transactions through different apps and websites
- They provide an additional layer of reliability and security when it comes down to trading and transactions. It facilitates various transactions through a fully-developed platform that offers the highest level of comfort
On the other hand, these exchanges are prone to hacking. With centralized exchanges, it’s obvious that they are handled by companies, and some of them have billions of worth of cryptocurrency, which makes them prone to hacking attempts. For instance, Mt. Gox was hacked with which over 850,000 Bitcoins were stolen, resulting in suspension. In addition to this, the centralized exchange has a higher transaction fee, which increases, even more, when you have to make bigger transactions.
Decentralized Cryptocurrency Exchange
Decentralized cryptocurrency exchanges allow users to opt for peer-to-peer (P2P) transactions without needing a third-party platform. A few people actually prefer decentralized exchange due to some concerns associated with centralized exchanges. However, it’s important to add that these exchanges don’t support fiat currency exchange. Some of these exchanges include Blocknet, Barterdex, and AirSwap. Some benefits of using a decentralized exchange include the following;
- To begin with, it helps mitigate the hacking risks. This is because they don’t need to shift their assets to a different trading exchange. Having said that, there won’t be any risk associated with these exchanges and will enjoy better security standards
- The users don’t need to provide their information or fill out the KYC forms, promising the highest standards of anonymity and privacy
- The exchange is free of market manipulation since it allows P2P exchange, so there are no chances of wash trading and fake trading
On the contrary, these are not very convenient to use because users need to use a variety of passwords and keys to have access to crypto wallets. In addition, the users must learn the processes to make it usable. Secondly, it doesn’t allow the trading or management of fiat currency, so it’s an issue for people who don’t hold cryptocurrencies. Last but not least, they don’t have much volume, which results in loss of liquidity, which makes it hard to trade when the trading volume goes down.
To summarize, cryptocurrency exchanges are critical if you want to get involved in trading and investment. With this article, we tried to share differences between a centralized cryptocurrency exchange and a decentralized cryptocurrency exchange, so weigh both options and don’t forget to consider the currencies that you’ll be working with!