Cryptocurrency exchanges play a crucial role in the burgeoning cryptocurrency industry. Trading or investing in cryptocurrencies continues to gain mainstream recognition, with high-net-worth individuals like Elon Musk and big money institutions like PayPal and JP Morgan all making an entry in one way or the other. Amid all these developments, crypto exchanges have become a cog, quietly making it possible for millions to acquire and invest in Bitcoin, Ethereum, and other crypto-assets.
Cryptocurrency exchanges are online platforms where you can convert cryptos to fiat currencies or another type of crypto. They can accept wire transfers, credit card payments, and other payment forms in exchange for digital assets.
Don’t confuse crypto exchanges for cryptocurrency wallets. Crypto wallets act as a store for your digital assets. When you buy cryptos, your exchange will send them to your wallet, which can be built-in, hosted on another platform, or on an offline device.
We’ve centralized and decentralized cryptocurrency exchanges, and they serve several purposes. As already mentioned, many businesses and individuals turn to them to convert their fiat currencies into cryptos. So, they act as a bridge between these two different economies. Since fiat is involved, withdrawal charges and transaction fees can get a little higher.
Most crypto exchanges offer trading pairs. This helps to match major government-issued currencies (fiat) with mainstream cryptocurrencies. Some of the most common pairs are LTC/EUR, ETH/GBP, and BTC/USD.
You may need to convert your local currency to a primary fiat currency in a few cases before initiating the conversion process. Most established exchanges use advanced algorithms that do this work automatically. Others can determine your currency’s value and then directly convert it into your preferred crypto.
Cryptocurrency exchanges are also crypto-to-crypto trading platforms. As of now, over 2 200 coins and tokens are being traded on these platforms. No single crypto exchange can support all these digital assets. So, you may have to convert your coins or tokens into one of the mainstream cryptocurrencies like Bitcoin or Ether on one exchange and then make another trade on a different exchange to get your desired currency.
Some exchanges have wallets where you can store your cryptocurrencies. You can take advantage of this if you want to engage in speculative investing. However, if you have huge funds, it’s better to use a different compatible crypto wallet with advanced security features.
Many large exchanges require new users to complete a simple registration process. The levels of verification vary, as some platforms only require you to confirm your email address. Others need new users to upload their identification documents and conduct live interviews. These checks help exchanges to comply with new anti-money laundering measures.
Most exchanges have many features in common. The main difference comes depending on whether you join a decentralized and centralized platform.
To choose the best cryptocurrency exchange that suits your needs, it’s vital that you fully understand the differences between centralized and decentralized exchanges. Here is a summary of the key differences:
|Centralized Exchange||Decentralized Exchange|
|Require registration and identification (Know Your Customer-KYC)||Don’t require users to declare their identification|
|Ran on private servers||Based on blockchain|
|Subjected to the authority of regulatory bodies||No regulation|
|More established exchanges offer some level of insurance in case of system failure||More secure as each block has a specific timestamp and a hash (unique ID)|
|Hacks can compromise private servers||Blockchains are hard to manipulate|
|Are private companies||Has no central control point|
The simplest definition of cryptocurrency pairs is digital assets that participants can trade for each other on a crypto exchange.
We talked about LTC/EUR, ETH/GBP, and BTC/USD as common pairs in the context of converting cryptos to fiat currencies and vice versa. It’s the same idea here. However, crypto pairs, as the name suggests, involve digital assets alone. For example, a cryptocurrency exchange can consider Bitcoin/Litecoin (BTC/LTC) as their cryptocurrency pairs. Ethereum/Bitcoin Cash (ETH/BCH) is another typical example.
How do cryptocurrency pairs work? They allow exchanges and users to compare costs between different cryptos. When you get to know the relative worth of a coin, you find it much easier to use it.
You can find out how much ETH equals one BTC. These two cryptocurrencies are usually the most versatile cryptocurrency pairs. However, there are many others on various platforms.
Crypto exchanges make money in various ways. One common one is that they charge deposit fees for transferring currencies. When you deposit money into an exchange, they consider that you’re buying currency from them and charge you for the service. Remember, the purpose of depositing the funds on these platforms is to transfer to another party.
Exchanges also charge withdrawal fees. Most of them offer you the option to pay a percentage of the amount you want to withdraw or a fixed price.
Since exchanges broker trades between buyers and sellers, they make money from this too. They charge a fee for every successful trade.
In the early phases of exchanges, they typically offer services that allow users to list coins and tokens. An exchange can then collect a percentage raised from Initial Exchange Offerings (IEO), Security Token Offering (STO), and Initial Coin Offering (ICO).
Whether you want to convert a cryptocurrency or fiat, the best place to start is to look for the best cryptocurrency exchange. There are plenty of options out there. However, not all of them will offer value for your money.
It would help if you considered the cost of service and terms and conditions. It would make more economic sense if you also thought about the exchange’s credibility and its ability to protect your money from loss.
Once you land the best crypto exchange, sign up and provide them with the required details or information.`
If you need assistance to choose an affordable, secure, and easy-to-use exchange, we can help. From our research and experience, we find Swapzone one of the best.
Here’s how to easily exchange any cryptocurrency on Swapzone
Cryptocurrency exchanges have made trading and investing in cryptos simpler and more secure today. They continue to play a huge role in overall adoption, with several like Coinbase and Binance leading the way towards mainstreaming the use of assets such as Bitcoin. For anyone looking to use a crypto exchange, however, it is important to note the differences between centralized and decentralized platforms, among other important considerations.