Three Types of Cryptocurrency Exchanges | Herald of Naracoorte

Three Types of Cryptocurrency Exchanges

The growing popularity of cryptocurrency investing has encouraged more and more people to consider jumping on the bandwagon and start buying and selling crypto.

If you are reading this, chances are you are hoping to gain a better understanding of cryptocurrency.

You may also be wondering about the difference between a broker and a cryptocurrency exchange.

When you use a cryptocurrency broker, a person or company acts as an intermediary between you and the crypto markets by facilitating trade.

Similar to exchanges, brokers also charge certain fees, which can cost more. On the other hand, exchanges are platforms that allow you to trade on your own.

Therefore, if you are interested in trading crypto on your own, a crypto exchange may be right for you. It won’t hurt to see it because it’s worth seeing.

Generally, cryptocurrency exchanges refer to web services that help people convert fiat currency or cash into cryptocurrency and vice versa.

Since an exchange offers a way to access cryptocurrency, understanding how it works and how you can maximize your crypto profits is essential.

That said, here are three types of cryptocurrency exchanges:

1. Centralized Crypto Exchanges

Centralized cryptocurrency exchanges (CEX) can be compared to traditional exchanges. In this case, cryptocurrency buyers and sellers come together while the exchange functions as a middleman.

In fact, in the crypto world, “centralized” actually means trusting another person to manage your money.

If you want to use this type of cryptocurrency exchange, you need to deposit your fiat currency or cryptocurrency on their platform. Then you place an order, whether it’s a buy or sell order.

When the exchange finds another person who is buying or selling at the same price, it matches you with that person, and then an exchange takes place.

For example, if you have placed a buy order at a certain price, you will have to wait until a sell order corresponding to the price of your buy order is found.

It should be noted that with these platforms, you may have better odds when trading crypto for another cryptocurrency.

Of course, it is essential to note the advantages and disadvantages of this type of cryptocurrency exchange.

The biggest advantage of centralized cryptocurrency exchanges is that they are remarkably user-friendly. Indeed, users simply log into the platforms in the form of apps, websites or software, view their wallets and make a transaction.

Disadvantage: Vulnerable to cyberattacks

Meanwhile, a notable drawback of centralized cryptocurrency exchanges is that they can be the target of cyberattacks. Shady individuals can hack into your account and steal your money and crypto.

Some notable centralized cryptocurrency exchanges include Coinbase, Kraken, Gemini, and GDAX.

2. Decentralized Crypto Exchanges

On the other hand, decentralized cryptocurrency exchanges (DEXs) are platforms where buyers and sellers come together and process their transactions on their own.

This type of cryptocurrency exchange can also be referred to as a peer-to-peer trading facilitator.

Since they are decentralized, you can expect there to be no middle man unlike centralized exchanges.

Instead, this platform uses technology, specifically blockchain, to validate trade ensuring that it is secure without human intervention.

The main advantage of this type of exchange is that they are generally more secure. They are more difficult to hack because your money or crypto is not entrusted to a third party. Moreover, since you will neglect the entire exchange, it also reduces the risk of scams such as fake trading.

On the other hand, given its strong security, you risk locking yourself in your crypto wallet. This can happen if you forget your keys and passwords because no one can retrieve them for you.

AirSwap, Blocknet, and Barterdex are among the most popular decentralized cryptocurrency exchanges.

3. Hybrid

The third and final type of cryptocurrency exchange is a hybrid cryptocurrency exchange that contains a combination of centralized and decentralized functionality.

It is currently known as the next generation of cryptocurrency market platforms as it combines the best of both worlds.

The hybrid cryptocurrency exchange offers the liquidity and functionality of a CEX and the security of a DEX. Also, it solves the scalability and trading fee issues of CEX and DEX.

Some of the leading hybrid cryptocurrency platforms include Qurrex, Legolas, and Eidoo.

Conclusion

Cryptocurrency has taken the online world by storm in recent years with more and more people becoming interested in investing in it.

However, as with any investment, it is important to fully understand how it works, allowing you to manage risk and maximize profits.

It helps to be familiar with how cryptocurrency exchanges work because they allow you to buy and sell crypto.

Also, by knowing the types of cryptocurrency exchanges, you will be able to decide which one is right for you.

Disclaimer: This content is for informational purposes only. It should not be taken as financial advice for buying, trading or selling cryptocurrencies. This is not intended to be used as investment, financial or legal advice, as each individual’s needs vary. ACM advises readers to consider their own circumstances and seek their own advice.