Cryptocurrencies wouldn’t thrive if they leaned toward peer-to-peer exchanges heavily. Crypto exchanges help buyers find a way to exchange their fiat for various cryptocurrencies. Most exchanges can accommodate any fiat currency into Ethereum, Bitcoin, Cardano, and other popular currencies. Learn about cryptocurrency exchanges and how they help crypto users.
Centralized or Decentralized?
Cryptocurrency exchanges have two versions: centralized and decentralized. Each one of them has its respective advantages and disadvantages. Let’s learn more about each of them in the following sections.
Centralized Exchanges
These are the third-party, company-owned exchanges that provide a digital infrastructure to facilitate exchanges between users and fiat exchanges for other cryptocurrencies. Today’s most popular cryptocurrencies have high transaction volumes worth billions daily because of their added security, ease of transactions, and immediate transaction results.
Why Use Centralized Exchanges?
Centralized exchanges add a huge layer of security that provides guarantees in case something untoward happens. In addition, these exchanges support the challenges customers face in using, maintaining, and profiting from using the central exchange. Today’s most popular central crypto exchanges include Coinbase, Binance, Kraken, and Gemini.
Centralized exchanges are user-friendly and teach them the basics of investing in cryptocurrencies as they would with stocks and ETFs. These exchanges use a streamlined process and ensure they can make transactions anytime. Company ownership and a centralized system ensure users have an extra layer of security and reliability.
Decentralized Exchanges
On the other hand, decentralized exchanges facilitate peer-to-peer transactions and only provide basic infrastructures, such as communication and contact details, to execute exchanges. According to decentralized exchange users, centralized exchanges defeat cryptocurrency’s decentralized purpose because they make customers comply with companies similar to national exchanges and brokerages.
Some great decentralized exchanges include AirSwap, Barterdex, Blocknet, and io.
Why Use Decentralized Exchanges?
Decentralized exchanges continue the original spirit of cryptocurrency by ensuring anonymity and personal security for all users involved. These don’t use advanced infrastructures, which leaves them at low hacking risk, zero market manipulation, and other unscrupulous trading practices. Anyone with a cryptocurrency readily available does not have to fulfill any know-your-customer forms and speeds up the exchange process.
Downsides of Centralized Exchanges
Due to its streamlined nature and security similarities, central exchanges are prone to hacking. Sometimes, central exchange hot wallets end up in criminal hands because of big hacks. In addition, centralized exchanges are at high risk of market manipulation, wash trading, and fake trading. Lastly, you may have to pay high commission and administration fees in central exchanges.
Downsides of Decentralized Exchanges
Decentralized exchanges ensure you won’t get hacked, but it means you have to protect your own investments. Plus, it requires in-depth research and determining the safest exchanges because decentralized exchanges are never streamlined. Lastly, you don’t have tools to help you estimate the crypto trading volume and perform technical analysis.
Which One is Best For You?
If you’re willing to put in the time to research, want to invest in cryptocurrency’s true spirit, and make anonymous transactions, decentralized exchanges are perfect for you. On the other hand, centralized exchanges have high fees and streamlined processes, but they ensure high liquidity and exchange your fiat for cryptocurrencies of your choice.
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