A Beginner’s Guide to Crypto Exchange

Binance, Kraken, Riverex, Pancakeswap—these are all examples of crypto exchanges present in the crypto space today. These crypto exchanges hold important functions for traders because these exchanges allow them to buy and trade cryptocurrencies.

Cryptocurrency 101: What is a crypto exchange?

By definition, a crypto exchange is a platform where traders buy and sell cryptocurrencies and digital assets. This is where traders trade one cryptocurrency for another or buy cryptocurrencies using fiat currencies.

Instead of traders agreeing upon an exchange rate and sending coins directly to their fellow traders, crypto exchanges expedite and simplify this process. Crypto exchanges make the process of trading and procuring cryptocurrencies easier and more convenient for crypto users all over the world.

Types of Crypto Exchanges

Centralized Exchanges (CEX): What is CEX exchange?

Centralized exchanges (CEX) are often the perfect choice for beginners. It has a user-friendly interface with all the functions needed in trading. Centralized exchanges (CEX) have KYC requirements, to comply with anti-money laundering regulations. In this sense, it has an ‘official’ feeling to them as the process is somewhat similar to that of brokerage accounts or opening a savings account.

Another thing to note, a centralized exchange uses a third party in conducting transactions, as well as in offering them security and monitoring. This central authority, however, has access to users’ funds and keys. 

Pros

• User-friendly; easy to use
• Allows the purchase of cryptocurrencies using fiat currencies.
• The centralized authority guarantees maximum security and dependability.

Cons

• Exposable to cyberattacks
• Gathers a lot of info from their clients
• Custodial

Decentralized Exchanges (DEX): What is DEX exchange?

Because there is no central authority on decentralized exchanges, it is much closer to the fundamental essence of Bitcoin. Servers are distributed globally to ensure that, in the event of an attack, not one computer can compromise the entire network. A DEX also does not require a KYC procedure, in contrast to CEXs. It is not facilitated by a central organization.

A decentralized exchange does not use any third party, authority, or financial regulators for monitoring or imposing regulations on the platform. This provides users control over their funds and private keys. This, in some way, imposes a high level of security and confidentiality for the users.

Pros

• Security against hackers
• Reduced fees and expenses
• No fraud

Cons

• Reduced liquidity
• Limited functions
• High transaction fees

Conclusion

Make sure that you understand the differences between the cryptocurrency exchanges before entering the world of cryptocurrencies, and find out more about your chosen exchange (no matter if it is centralized or decentralized). With this, you will be able to manage your trading wisely and protect yourself from any risks when it comes to crypto trading. You can also read our Beginner’s Guide To Crypto Wallets to crypto wallets.

Disclaimer: This article solely expresses the author’s thoughts, which may not reflect those of Hippo Wallet. Nothing in this article should be interpreted as investment guidance. Hippo Wallet encourages all users to do their research before investing in cryptocurrencies.