Cryptocurrency exchanges: What you need to know

If you are interested in buying cryptocurrencies, you will need to find a crypto exchange. But, what exactly is it? These are platforms that enable people to trade cryptocurrencies for other assets, such as fiat or digital currencies. To put it simply, these exchanges work as intermediaries between a buyer and seller and profit in the form of transaction fees and commissions. There are two types of cryptocurrency exchanges that you can find; centralized and decentralized exchanges. It is essential to understand their pros and cons before you choose one. Let’s start digging:

Centralized exchanges

These are exchanges that are third-parties between buyers and sellers and they offer reliability because they are operated and controlled by a firm. Almost 99% of all crypto transactions are conducted via centralized exchanges. Coinbase, Kraken and Gemini are some of the popular centralized exchanges that exist. There are several benefits these exchanges offer, which include:

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  • User-friendly

Beginner investors will find centralized exchanges a friendly and familiar way of trading and investing in the cryptocurrency of their choice. Peer-to-peer transactions and crypto wallets can be complex, while centralized exchanges just require you to log into your account, view your account balance and conduct transactions via website and apps. You can also use them for automated trading through trading bots, such as Crypto CFD Trader, which trade on your behalf.

  • Reliable

When it comes to trading and transactions, centralized exchanges can offer an additional layer of reliability and security. Transactions are facilitated via a centralized and developed platform, which can offer a greater level of comfort.

However, this doesn’t mean that there are no downsides to centralized crypto exchanges. Since they are operated by companies that are responsible for holding billions of dollars worth of cryptocurrencies, these can be a target of theft and hackers. Furthermore, they are also known for charging a high transaction fee for their convenience and service, particularly when you trade in large amounts.

Decentralized exchanges

Referred to as DEX, decentralized exchanges enable people to conduct peer-to-peer transactions without requiring an intermediary or a third-party. A number of users prefer decentralized exchanges because of some of the issues associated with centralized ones. However, you should bear in mind that these exchanges do not facilitate fiat currency trading for cryptocurrencies. Some of the most renowned decentralized exchanges include AirSwap, UniSwap, Blocknet and io.

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As far as the benefits of decentralized exchanges are concerned, some of them are:

  • Mitigate hacking risk

When you are using a decentralized exchange, there is no need to transfer your assets to a third party. Hence, you don’t have to deal with the risk of an organization or company being hacked and your money being stolen.

  • Prevent market manipulation

As decentralized exchanges allow peer-to-peer exchange of crypto because of their nature, they are able to prevent any sort of market manipulation and this can keep users safe from wash trading or fake trading.

  • Anonymity

One of the best things about decentralized exchanges is that users are not required to comply with any KYC (Know Your Customer) policy rules and this grants anonymity and privacy to the users.

While these benefits of decentralized exchanges are certainly notable, you shouldn’t forget that they also have some downsides that need to be taken into account. First off, the lack of fiat payments can make them less convenient for many users. Secondly, using decentralized exchanges is a lot more complicated than centralized ones and users have to remember their passwords and keys. Lastly, these exchanges lack liquidity because, as aforementioned, almost 99% of crypto transactions are via centralized exchanges.

Of course, it is up to you to decide what kind of cryptocurrency exchange you want to use for your trading and investing needs. You can explore the basic concept, as well as the pros and cons of centralized and decentralized exchanges to make a decision that suits your preferences.