What is a Cryptocurrency Exchange? – A Detailed Guide

A guide on cryptocurrency exchanges

If you are interested to invest in cryptocurrencies, you need to find a suitable cryptocurrency exchange.

Cryptocurrency exchanges allow you to buy, hold, or sell cryptocurrencies any time you want, while still ensuring anonymity and safe transactions.

Thus, it is important that when deciding to invest in cryptocurrencies you need to be sure that you are using a legit cryptocurrency exchange.

Types of cryptocurrency exchanges

1. Centralized Exchanges

Centralized exchanges require a central authority, such as an online platform that serves as a broker, that tells you the price of the cryptocurrency and then allows you to proceed with the payment by taking an additional fee (usually low fees).
Some examples of centralized crypto exchanges are Binance, Kraken, Coinbase, etc.

Binance exchange logo. Source: Medium

2. Decentralized Exchanges

A direct peer-to-peer exchange that runs through smart contracts. These smart contracts eliminate the need for a central authority and no additional fees are required.

According to Coinmarketcap, some of the most popular decentralized crypto exchanges are MDEX, Uniswap, PancakeSwap, JustSwap, etc.

Uniswap exchange logo. Source: Medium.

3. Hybrid Exchanges 

As their names suggest, hybrid exchanges are a combined version of centralized and decentralized exchanges. Since both centralized and decentralized exchanges may have flaws, the hybrid version consists of the positive features of each. 

Some examples of hybrid crypto exchanges are Qurrex, Eidoo, Legolas, etc.

Things To Keep In Mind Before Using Crypto Exchanges

Even though a cryptocurrency exchange proves to be legit because of its popularity, there are some aspects of trading that you should always keep in mind before using a cryptocurrency exchange.

  • Fees

If you are using a centralized cryptocurrency exchange platform, then you should initially check on the transaction fees that the platform gets. Some crypto exchanges have higher fees and some have lower.

  • Payment Methods

You should consider what payment method you are going to choose. Not all exchanges allow you to pay for transactions in whatever way you want. Some support debit cards and PayPal, but perhaps will not allow you to wire transfer money through your bank account.

  • Verification

Most cryptocurrency exchanges require that you verify your identification by uploading a valid picture of your ID, utility bills that verify your location, etc. This is to ensure that no scammer uses cryptocurrency exchanges.

  • Restrictions

You should keep in mind that some countries do not allow cryptocurrencies at all, and you will not be able to trade cryptocurrencies within those countries. Hence, you need to be aware of any possible restrictions.

  • Exchange rate

Cryptocurrency exchanges differ in exchange rates as well. The more you look, the more likely it is for you to find a cryptocurrency with suitable exchange rates.

Overall, cryptocurrency exchanges are very important for realizing a cryptocurrency transaction. You can decide which cryptocurrency exchange to use by checking their services and the efficiency they provide.

Takeaways

  • Cryptocurrency exchanges are used to invest and trade cryptocurrencies.
  • Cryptocurrency exchanges allow you to buy, hold, or sell cryptocurrencies any time you want, while still ensuring anonymity and safe transactions.
  • Exchanges can be centralized, decentralized, or hybrid.
  • Before investing through cryptocurrency exchanges, you should first be aware of the transaction fees, payment methods, verification requirements, exchange rate, as well as the popularity of the cryptocurrency exchange.

 

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