A cryptocurrency exchange is an online trading platform that offers liquidity for crypto traders to buy and sell different digital currencies, such as BTC and ETH. The cryptocurrency exchange platforms allow you to buy your desired digital currency for a fiat currency like the US dollar or other altcoins.
You can use a reputable cryptocurrency exchange site to place your trade orders in two ways, such as limit or market orders. A limit crypto order enables you to sell your digital coins at an exchange rate specified by you.
This way, you can provide other crypto users on the exchange with liquidity. You can only get through such orders if the market price is up to the value you set. On the other hand, you can sell our crypto assets at a market price as a market order.
Types of Cryptocurrency Exchange Types
Cryptocurrency exchanges have two primary types, such as centralized and decentralized. Let’s look at each in detail.
Centralized Cryptocurrency Exchange Platforms
Many crypto investors prefer signing up on centralized crypto exchanges. These crypto trading sites provide users with a central trading platform for cryptocurrencies. eTore, Binance, Coinbase, and BlockFi are some well-known cryptocurrency exchanges that operate with centralized cryptocurrency exchange platforms. These exchanges feature liquidity, volumes, active trading, and high trading volumes.
New and experienced cryptocurrency traders can take advantage of easy-to-use and more efficient user interfaces alike. They direct your cryptocurrency off the blockchain. It means there is no fee to verify for transactions, which saves you money and time. Centralized cryptocurrency exchanges adhere to the Know Your Client rule.
Accordingly, crypto users need to sign up with one of these crypto exchanges and provide identification when accessing the trading platform. With these security measures, crypto users can sell and purchase digital currencies with more peace of mind than a decentralized exchange may provide you.
Centralized exchanges run on their specific private servers. It makes your information more vulnerable to hackers. They store your digital assets within their dedicated custodial wallets. While this aspect may sound daunting for the safety of your investments, most reliable centralized cryptocurrency exchanges have insurance coverage to protect your funds in case of their system failure.
Users can only benefit from the insurance if the crypto exchange is responsible for the loss. If your computer fails with a subsequent crypto account failure, the cryptocurrency exchange wouldn’t be able to help.
Decentralized Cryptocurrency Exchanges
Unlike centralized crypto exchanges, decentralized platforms work with the bitcoin philosophy. These platforms comprise individually controlled PCs across the world. In case of a hacking attack on one PC, other computers do not come crashing down. It makes extensive data breaches almost impossible.
Decentralized crypto exchanges do not have a central entity running the system. Therefore, no regulatory body can subject these exchanges to their policies. You do not need to sign up or identify yourself on a decentralized crypto exchange. It means anyone can use these platforms they want, which may result in consequence-free prohibited activities.
While decentralized cryptocurrency exchanges have some drawbacks, some investors choose to be a part of such platforms for many reasons. Freedom to keep cryptocurrency in your digital wallet, for instance, can be one of the reasons to choose a decentralized company. Likewise, there are no regulations on these crypto exchanges, which might provide many users with peace of mind for the freedom to trade cryptocurrency in their desired way.
Regardless of what type of crypto exchange you choose for cryptocurrency trading, some factors are worth considering making the right decision.
Liquidity
The potential of a crypto exchange has a lot to do with determining the price pattern of a digital currency. Choose a crypto exchange with a significant daily volume for your desired digital currency.
Speed
Look for the transaction execution speed of the crypto exchange you are considering using for your business. It will help determine if you can make money as a day trader or profit from your trades within a specific time.
Regulations
Digital space is subject to scams. Pick a crypto exchange that aims to prioritize KYC for the verification process. Many crypto exchanges seek a government-issued ID card to confirm the details entered by you during the registration process and verify the information to secure your account. Never work with a crypto exchange that performs not extensive verification.