Types of Crypto Exchanges: Here’s What You Need To Know
Beginner Jan 17, 2023Crypto exchanges are helpful in allowing traders to buy and sell cryptocurrencies.
As an individual, traders should consider their goals and the risks they might take before diving into crypto trading. Most importantly, they have to be familiar with how cryptocurrency exchanges work first, before choosing which one to use.
Below are a few types of crypto exchanges available in the market today:
1. Centralized Exchanges
Centralized Exchanges or otherwise known as CEX, are similar to the traditional stock exchanges in the market today. It acts as a middleman for buyers and sellers of cryptocurrencies wanting to acquire or sell virtual assets.
As it is ‘centralized’, traders are trusting somebody else—a central authority—to handle their cryptocurrencies. It is overseen by a third party that ensures customers sign-up and trading runs smoothly and efficiently.
Notably, centralized exchanges allow trading with both fiat currency and other cryptocurrencies.
2. Decentralized Exchanges
Decentralized Exchanges or otherwise known as DEX, are platforms that facilitate peer-to-peer trades. It aims to stay true to the very nature of cryptocurrencies and blockchain—decentralization, without a middleman to handle traders’ funds.
Since it conducts peer-to-peer trades, traders come to the platform to conduct the transactions directly with each other.
In addition, most experienced traders go to this kind of exchange as it needs more technical skills to navigate. Moreover, because it has no central authority, traders are expected to be responsible and accountable for their funds and their private keys.
Centralized Exchange vs. Decentralized Exchange
| CEX | DEX |
| Advantages | |
| 1. Excessive trading volume 2. A high level of liquidity 3. Trading from fiat to cryptocurrency 4. Crypto-to-fiat exchange 5. Extensive functionality 6. Simple to use 7. Transactions that are completed quickly | 1. Security against hackers 2. Reduced fees and costs 3. There is no deception. 4. Allows integration of DeFi and NFT 5. A wide range of tokens 6. Independence from government control |
| Disadvantages | |
| 1. Vulnerable to hacks 2. Gathers extensive data from their customers 3. Custodial | 1. Less liquidity 2. Limited performance |
Conclusion
It is critical to have a thorough understanding of the various types of crypto exchanges when selecting the right one to use. This will allow you to determine the best crypto trading platform that meets your needs and, as a result, which will be the most convenient for you to use.
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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.
