With the rise of several cryptocurrencies in the industry, many people have started taking interest in doing transactions, investment, and trading cryptocurrencies. Since the inception of bitcoin, various cryptocurrencies exchanges have built. Such a cryptocurrency exchange allows users to do all the activities related to cryptocurrencies. Cryptocurrency exchanges can be a web application, mobile application, or both. Some of the examples of cryptocurrency exchanges are Binance, Coinbase, and many more.
What is a cryptocurrency exchange?
Cryptocurrency exchanges are web-based or mobile-based applications that allow users to conduct different activities like sending, receiving and trading of cryptocurrencies. Such platforms may or may not have a native currency that could be used to buy different cryptocurrencies. For example, Finance a cryptocurrency exchange does have a native cryptocurrency, BNB. BNB is used by users as a trading pair with different cryptocurrencies
Cryptocurrency exchanges can be of different types such as a public cryptocurrencies exchange or private-public cryptocurrencies exchange. Such exchanges would be available for only specific people on an invite based whereas public cryptocurrencies exchanges are available for everyone.
Centralized cryptocurrency exchanges and decentralized cryptocurrency exchanges.
Cryptocurrency exchanges can be categorized further as centralized and decentralized based on how they are controlled. It means that centralized cryptocurrency exchanges are controlled by a central authority. Whereas decentralized cryptocurrency exchanges are controlled by no central authority. It is more distributed and everyone has equal authority over exchanges.
- Centralized Cryptocurrency Exchanges.
- Centralized cryptocurrency exchanges are online platforms used for transacting cryptocurrencies. All the centralized cryptocurrency exchanges do make use of third parties to control and authorize transactions.
- Such cryptocurrencies exchanges allow trading from fiat to cryptocurrency or vice versa. It covers all the important aspects of the market.
- In centralized cryptocurrency exchanges, users do store all the currency in the exchange’ storage. Hence cryptocurrency exchange has control over all the user’s accounts. You must have heard about different stories about centralized exchange getting hacked.
Centralized Cryptocurrencies exchanges have several disadvantages.
In recent times, several cryptocurrencies exchanges have hacked including binance. Such cyber-attacks include phishing ransomware and many more. It has led to the loss of a huge amount of cryptocurrencies of users.
Back in 2019, hackers have hacked binance, and around $40 million bitcoins were stolen from the platform. It is the world’s largest cryptocurrency exchange. Such hacks are more likely to occur in centralized cryptocurrency exchanges.
Several governments have banned centralized cryptocurrency exchanges in Countries like China, South Korea, and Russia.
Centralized Cryptocurrency exchanges do compromise of privacy as they do need different sensitive information of the user. User needs to provide different information such as bank account details, government-issued IDs, and much more.
In centralized exchanges, people do not have access to the private keys of exchange account wallets hence, all traders need to trust exchange operators. All the transactions are through the common mechanism by a central authority.
- Decentralized cryptocurrency Exchanges or DEXs.
- Decentralized cryptocurrencies exchanges are not controlled by a central authority. It uses all the concepts of blockchain technology. Hence it does not hold anyone money or any private information.
- In decentralized cryptocurrency exchanges, you may find low trade volume since it is quite difficult to use and have limited functions. Most of the decentralized exchanges do have very little liquidity as compared with Centralised cryptocurrency exchanges.
- Also, it allows only the exchange of cryptocurrencies. All the payments in decentralized cryptocurrencies exchanges are made using the cryptocurrencies.
- Decentralized cryptocurrency exchanges are more secure since all the does are distributed and it becomes difficult to hack such exchange. It has a huge level of privacy since transactions are anonymous.
Which one should you choose? Centralized Cryptocurrency exchange or Decentralised Cryptocurrency exchange in the market.
If we talk about choosing a Centralised or Decentralised, Decentralised would be better as it does have advantages over centralized Cryptocurrency exchange. Since centralized cryptocurrency exchange is more likely to get hacked. Also, the government does not control cryptocurrencies, hence most people do prefer decentralized issuance of money.
Hence many crypto enthusiasts are looking forward to using DEX or Decentralised cryptocurrency exchanges. It totally depends on you which cryptocurrency exchange you want to choose.
What are the different factors one should consider while choosing a cryptocurrency exchange?
If you want to use any cryptocurrency exchange, you should make sure that the following factors are in yours favour. As such factors would allow users to do transactions easily.
- An exchange should be available in your country.
- It is really important that you choose an exchange which is available in your country and accessible worldwide. Due to huge financial regulations, government and financial institutions do heavily govern different cryptocurrencies. Let us take an example, if you use a cryptocurrency exchange based in India, it would only accept Indian currency for buying cryptocurrencies hence, you cant make transactions using any other currency like dollar or yen.
- Trading fees should below.
- It is really important that whatever exchange you choose should charge low or competitive trading fees. Since high trading fees would take a good amount of your deposit or withdraw. Such fees are applicable to different activities like buying and selling. For example, cryptocurrencies exchanges do charge 0.0005 BTC for transacting bitcoin from one cryptocurrency exchange to another. Many times several cryptocurrency exchanges do not disclose any hidden fees. Hence it is your duty to check all the hidden charges if added.
Several other features of cryptocurrency exchanges.
- A cryptocurrency should be available.
- Several times it so happens that users are not able to find their cryptocurrency in which they want to trade. Although most of the exchanges do have different major cryptocurrencies, like Bitcoin, Ethereum, lItecoin, and many more. If any user would like to invest in any lower altcoin, then one should check if it is available in exchange or not.
- It is really important to check if your exchange has a good reputation in the cryptocurrency market. Since several cryptocurrency exchanges are coming up and most of them are a scam. Hence you need to make sure about the volume and make sure it is famous and used by a huge number.
- A secure cryptocurrency exchange would always make sure, all user’s funds are secure. Also, such secure exchanges are less prone to any hack. It is really needed to make sure, the cryptocurrency exchange is secure.
Several other factors do matter while choosing a cryptocurrency exchange such as liquidity and many more. It is really important to make sure whatever exchange you choose, such exchange should allow you to sell an asset with less fluctuation in the prices. Most of the time liquidity occurs when more buyers and sellers come into the market. In most cases, big and famous exchanges do have high selling prices.
What is the major difference between a cryptocurrency exchange and cryptocurrency wallets?
Cryptocurrency wallets and cryptocurrency exchanges do have several differences. Hence one should not consider the wallet an exchange. Cryptocurrency exchanges let users store and manage different crypto assets. if you want to use a cryptocurrency wallet, then you have full control over your cryptocurrency like bitcoin. But it is not the same in cryptocurrency exchange. In cryptocurrencies exchange, you don’t have control over your cryptocurrencies, and many times it refers to as the crypto exchange.
A cryptocurrency wallet does let users fully control cryptocurrencies whereas exchange services do not. A digital cryptocurrency wallet is accessible from anywhere. But a major disadvantage of using a cryptocurrency wallet is that it does need to be safe. If you lost your wallet you won’t be able to recover your digital currency. But it is not in the case of any cryptocurrency exchange since in cryptocurrency exchanges you don’t have control and access over your private keys. Even if you uninstall any exchange application from your phone, you can easily access it from anywhere and use cryptocurrencies.
Different types of wallets.
Cryptocurrencies are of different categories, cold storage wallets, hardware wallets, software wallets, and paper wallets. Hardware wallets are just like small hardware storage devices like pen drives or hard disks. Whereas a software wallet is available on your desktop, you need to install it. And paper wallets are just like paper.
What are some of the best cryptocurrencies exchanges?
As a beginner, it is really important for you to choose a cryptocurrency exchange that is secure and has all the features and characteristics which let you do flawless transactions. Some of the famous cryptocurrencies exchanges are the following.
- Coinbase is the most trusted cryptocurrency exchange. Such a cryptocurrency exchange has regulation by the united states financial institution. It does include around $250k deposits including the FDIC insurance. Also, it is back by several famous and mainstream investment banks.
- Binance is the most used cryptocurrency exchange, it was founded by Changpeng “CZ” Zhao. he is a Chinese software developer who built several systems such as the Tokyo Stock Exchange. Also further he developed trading software for trade book by Bloomberks. It was based in China but due to certain regulations, it moved to japan. Further due to Japan’s FCA it moved to Malta in Europe.
- Binance lets users exchange coins to coin cryptocurrencies for trading. Some of the biggest coin pairs are available on such a platform. It does let users do margin and derivative tradings.
Some other exchanges.
- Kraken is one of the oldest and biggest cryptocurrency exchange. In the beginning, it was lagging, but recently it improved allot. It is one of the most trustworthy exchanges in whole space. All traders can to trade in both cryptocurrencies and fiat currencies. Several large numbers of cryptocurrencies exchanges are available. Kraken has some of the essential features like all-day support, a huge range of dining options, and many more.
- Bitmex is a best cryptocurrency exchange. Recently it has gained huge potential and gains but at the same time several losses. According to most of the reports, around 95% of traders lose money. It allows us to do trading based leverage hence most people do leverage trading without any caution.
- It is another cryptocurrency exchange which is fast and anonymously. It has got huge transaction speed. Challengely does not let users to invest or trade any cryptocurrencies.
Several decentralized Cryptocurrency Exchange.
Some of the famous decentralized exchanges are the following.
- It is a decentralized exchange like several others such as Kybernetwork, Bancor, Radar Relay, and much more.
- It is a peer to peer token train platform on ethereum. It does not charge any trading fees.
Several other famous DEXs are available in the market.
It totally depends on you which cryptocurrency exchange would you like to choose. As a newbie, you should use coinbase or binance since it is much easier to use and you don’t need to care about losses like in BitMEX. If you are intermediate or professional and would like to choose a trading cryptocurrency exchange, BitMEX would be a perfect choice.