Cryptocurrency Exchanges ensure interoperability of the digital currency industry, by serving as a marketplace where users can pay cash (Fiat) to acquire cryptocurrencies. They also bridge the gap between multiple cryptocurrencies allowing users to trade between two or more cryptocurrencies.
Centralized Cryptocurrency Exchanges are Intermediaries that can assist in the acquisition of Cryptocurrency with Fiat, offer their platform to Crypto traders for their day trading activities and act as a third-party between a buyer & seller of Cryptocurrency (P2P).
Decentralized Cryptocurrency Exchanges provide a platform for cryptocurrency users to exchange their cryptocurrencies for other cryptocurrencies without the need for a third-party interference.
Decentralized exchanges also do not facilitate the trading of cryptocurrencies for fiat.
This Post Contains
- What Are Cryptocurrency Exchanges?
- Centralized Cryptocurrency Exchanges.
- Best Centralized Exchanges (CEX)
- Decentralized Cryptocurrency Exchanges.
- Best Decentralized Exchanges (DEX)
What Are Cryptocurrency Exchanges?
Cryptocurrency Exchanges are digital currency platforms that allow users to exchange their Cryptocurrencies for other cryptocurrencies or Cash (Fiat), buy cryptocurrencies with cash, trade the cryptocurrencies or stake them for rewards. There are two types of Cryptocurrency exchanges, Centralized & Decentralized exchanges. Both come with their unique features as well as Pros and Cons of using them.
Centralized Cryptocurrency Exchanges
Centralized exchanges facilitate the buying and selling of Cryptocurrency for digital currencies or Fiat currencies such as the US dollar.
They’re controlled by the companies offering their platform for the exchange of Cryptocurrency. These Companies are also responsible for the security of your funds.
- Ensures Interoperability Of Cryptocurrency: Centralized exchanges make Cryptocurrencies from multiple blockchains available on their platform. This means that users can trade in-between coins from multiple blockchains unlike Decentralized exchanges.
- Buying and Selling Of Cryptocurrency: Centralized exchanges enable Users to exchange their Fiat currencies for cryptocurrency and vice versa through the use of their debit or credit card or via wire transfer.
- Offer of a trading platform: Centralized exchanges offer professional traders an opportunity to earn money through specific trading features such as futures trading, margin trading and spot trading.
- Insecurity of funds: Centralized exchanges are at risk of being hacked, with many exchanges having been taken down by hackers in the past with the hackers carting away millions of dollars worth of Investors funds.
Binance, Bitfinex and BitMart have all been hacked before, with BitMart losing $150m in Investors funds.
- Centralization: The funds you have in a Centralized exchange are under the control of a central authority (The exchange). If you violate their rules you’re at risk of losing your funds as they can restrict your access to your account. In addition, If you choose to store your cryptocurrency on a Centralized exchange, you are counting on the exchange to keep your funds secure.
Best Centralized Cryptocurrency Exchanges (CEX)
Binance (Most popular and best for P2P)
Coinbase Pro (Best in terms of Security)
Gate.io (Best exchange to find low cap gems)
Decentralized Cryptocurrency Exchanges
A Decentralized exchange (DEX) allows for the buying and selling of cryptocurrencies without the need for a third-party and with the transactions being executed with smart contracts.
The non-custodial feature means that transactions are executed without need of approval from any Intermediary.
- Eliminates Risks To Security of funds: Decentralized exchanges are less susceptible to hacking compared to centralized exchanges. All you have to do to secure your funds after every transaction is disconnect your wallet from the exchange and you’re safe.
You don’t have to rely on a third-party organization for the security of your digital assets.
- Decentralization: Your cryptocurrencies are under your control, you don’t have to worry about waking up one morning and finding out that an organization has suspended your account.Transactions are self-executed by smart contracts which means there’s no Intermediary monitoring your trading activities or controlling your funds.
- Privacy: You’re not required to verify your identity or fill out Know-your-customer forms, with a decentralized exchange you have privacy and anonymity.
- Not Interoperable: Decentralized exchanges weren’t designed to serve as a hub for diverse cryptocurrencies.
Most work with only one blockchain with no offer of cross-chain swap features, for example some DEXs are only available for ERC20 tokens (Ethereum blockchain) which means you can’t buy a BEP20 token from the exchange.
In addition they also don’t serve as a link between Fiat currencies and Cryptocurrency which means they can’t be used to buy cryptocurrency with cash.
- Not beginner-friendly: For a user who is just starting out in the cryptocurrency world, using a decentralized exchange can be frustrating. It is very difficult for newbies to easily get familiar with DEXs unlike centralized exchanges that have a beginner-friendly interface.
Best Decentralized Cryptocurrency Exchanges (DEX)
Uniswap (V2) (Most popular ERC-20 DEX)
PancakeSwap(V2) (Most popular BEP20 DEX)
AnySwap (Best cross-chain DEX)
Cryptocurrency exchanges have come a long way since the inception of cryptocurrency, exchanges have revolutionized the flow and control of money changing the way people access and control their financial assets.
Though there are still shortcomings that need to be addressed, Decentralized finance is improving everyday at a high rate with new innovations coming into the market.
To have a pleasant experience as a Cryptocurrency investor, it is more advisable to store your digital assets in a Cryptocurrency wallet as they’re more secure compared to an exchange.