What are Crypto Exchanges and What are their Types?

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Generally, as a beginner in the world of cryptocurrencies, there are a lot of important tools that you need to have but the most important is a cryptocurrency exchange account. Also, while it is good to have a cryptocurrency wallet as a beginner, you need the best among the rest if you will have a smooth beginner’s journey.

Today, there are hundreds of cryptocurrency wallets available for use on the internet. This huge number is to meet the need of cryptocurrency traders to trade the thousands of cryptocurrencies in the market. Currently, there are over 4000 cryptocurrencies in the market, and each of them has individual trading volumes and market cap every day. One thing the figure shows us is that cryptocurrencies will grow bigger in the future.

Also, in the last decade, there has been an increase in the number of cryptocurrency traders globally, and it is because of the rise in cryptocurrency interest globally.

As a trader, you will have to store your cryptocurrency wallets, and from them, you can either trade or exchange them in a cryptocurrency exchange. People can get cryptocurrencies via mining (bitcoin, for example), but that is too capital intensive. So, buying cryptocurrencies is the best way to own them. However, you can only buy cryptocurrencies from a cryptocurrency exchange.

As a beginner in cryptocurrency trading, you must know what cryptocurrency exchanges are and the types that are available in the cryptocurrency ecosystem. So, in this article, you will see we will explore what an exchange is and the various types of exchanges available to cryptocurrency traders in the ecosystem

What Is a Cryptocurrency Exchange?

A crypto exchange is an exchange for digital currencies. In other words, a cryptocurrency exchange means a cryptocurrency broker. These cryptocurrency brokers allow cryptocurrency users to exchange cryptocurrencies or trade them.

Furthermore, you can trade or exchange a cryptocurrency in an exchange for other cryptocurrencies, assets, or fiat. Primarily, trading cryptocurrency means buying and selling digital assets.

Technically, the definition of a cryptocurrency exchange is a marketplace for transacting digital currencies. In this marketplace, you can sell or buy cryptocurrencies (digital currencies) using fiat money or other cryptocurrencies.

Again, in layman’s words, a cryptocurrency exchange is an online platform where cryptocurrency buyers and sellers meet to buy and sell cryptocurrencies.

In addition, there is a feature called Cryptocurrency loan. This feature allows those who want to invest or are already investing in cryptocurrencies to loan out their coins or token for stated profits. This loan feature is a special feature that you will find in very good exchanges.

Types of Cryptocurrency Exchanges

For emphasis, part of the core of the cryptocurrency ecosystem is cryptocurrency exchanges. So, as a beginner who wants to be grounded on this subject, here are the types of cryptocurrency wallets that are available in the ecosystem.

Centralized Exchanges

What are Crypto Exchanges and What are their Types

Just as the name implies, a centralized exchange is a cryptocurrency exchange with a central governing body. In others, there is an individual or a company that is in charge of the exchange.

Although you can trade or exchange bitcoin, ether, and most decentralized cryptocurrencies in a centralized exchange, they do not run like these decentralized exchanges. Examples of centralized exchanges are Binance, Kraken, Gemini, Coinbase, etc.

In reality, a centralized cryptocurrency exchange is a private company hosting at least one trading platform that allows crypto to crypto, crypto to fiat, and/or fiat to crypto trading. Due to their centralized nature, users only get permission to use these platforms when they have completed their registration, submitted documents for identification, and gone through all the necessary verifications that come with opening an account for cryptocurrency trading.

Additionally, some features are in centralized exchanges. These features are

  • High trading activity.
  • High liquidity.
  • High trading volumes.

Although users in centralized exchanges enjoy these features, they still suffer account safety issues. The data of users is not safe because before the registration process a user in these exchanges requires that you submit your private information. Sometimes, to make up for this setback, most centralized exchanges give users some kind of insurance if the cryptocurrency exchange folds.

Again, this solution can be futile if the database of these centralized exchanges containing user information has been breached before folding. However, users can take care of this issue by withdrawing the bulk of their accumulated funds regularly from the exchanges to their regular accounts.

Decentralized Exchanges

What are Crypto Exchanges and What are their Types

Another name for decentralized exchanges is peer-to-peer (P2P) cryptocurrency trading platforms. Examples of the best cryptocurrency exchanges in this category are Binance DEX, Bancor, IDEX, and Bisq.

These exchanges are the direct opposite of centralized exchanges, which means that they do not have central control. A decentralized exchange is built on blockchain technology and most of them use Ethereum smart contracts for operations.

One perk of decentralized exchanges is anonymity. Users do not need to register with their private details to use them.

Due to the decentralized nature of these exchanges, they cannot fail because control is not by one user;  they are controlled by multiple servers. Nevertheless, if one user server fails, the account of the user would still be active. Lastly, decentralized exchanges have two drawbacks.

  • Low liquidity
  • Low trade volumes

Learn more: DEX (DECENTRALIZED EXCHANGE) VS. CEX (CENTRALIZED EXCHANGE)

Hybrid Cryptocurrency Exchanges

These cryptocurrency exchanges are a blend of both decentralized and centralized exchanges. While they have high liquidity and trade volumes, they also provide security and safety measures for their users using smart contracts and blockchain technology. Examples of best exchanges in this category are Eidoo, Stoxum, Binance DEX, Qurrex, etc.

It is not enough to know the route to a destination, you need to also prepare for the journey and take whatever you will need for the journey. Bitcoin trading and the world cryptocurrency is a journey, and it is not a short one. So, as a beginner, you need to know the tools that you will need for having a smooth start at least; the first cryptocurrency exchanges and the various types.

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Mufasa
Mufasa
Mufasa is the lead writer at CryptoMufasa who likes to share all the latest info on the crypto world with you! Mufasa Enjoys enjoys a good read and recommendations so don't forget to comment on the posts and let him know.

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