What Is a Cryptocurrency Exchange and What Are Its Types?

Cryptocurrencies have taken the world by storm, especially popular ones like Bitcoin and Ethereum. However, many people have no idea how they can acquire cryptocurrency. The most common way is to use an exchange, e.g., ChangeNOW, which is one of the best bitcoin exchanges. This article will explain what a crypto exchange is and the types you can use. 

What Is a Cryptocurrency Exchange?

A crypto exchange is simply a platform where you can buy and sell cryptocurrencies. It is an online marketplace where you can swap fiat currency for a digital token or one token for another. The platform usually charges a fee on all transactions to earn revenue. 

Types of Cryptocurrency Exchanges

Exchanges are the easiest way to acquire digital tokens. But, it is necessary to understand their different types and when it is suitable to use them. They include:

Centralized Exchanges (CEXs)

This is an intermediary that facilitates crypto trades and acts as a custodian for your funds. The platform is operated by a centralized authority that exercises control over transactions. 

CEXs operate on an order book system where you can see a real-time list of outstanding buy or sell orders for a specific token. A matching engine then connects buyers and sellers to execute a transaction. The price of any asset depends on demand and supply on the CEX.

Advantages:

• CEXs tend to have better liquidity because it is what most crypto traders use. This enables users to execute trades at the best possible prices.
• It is possible to recover your assets on a CEX even though you misplace your login credentials. 
• They are easier to use, especially for beginners in the crypto sector.
• The exchange keeps custody of your assets and saves you the stress of storing private keys.

Disadvantages:

• CEXs usually require know-your-customer (KYC) identification for all users, which may be uncomfortable for some people.
• They are vulnerable to hacking that could cause millions of dollars in losses, e.g., Bitfinex and MtGox.

Decentralized Exchanges (DEXs)

Decentralized exchanges (DEXs) allow users to buy and sell assets directly without a third-party intermediary. Here, users remain in control of their assets and are responsible for securing them. DEXs rely on smart contracts, which are self-executing programs on a blockchain. Think of them as peer-to-peer marketplaces.

Advantages:

• You retain control over your assets, so they cannot be tampered with by a centralized authority.
• DEXs don’t require know-your-customer identification, which is preferable for some users. 
• Because of their peer-to-peer nature, there is less room for market manipulation and other malicious activities like wash trading.

Disadvantages:

• DEXs don’t support fiat currencies because of non-compliance with know-your-customer (KYC) requirements.
• They are more complex to use, which makes them suitable for only sophisticated investors.
• Your assets will be permanently lost if you misplace the private keys and recovery phrase.

Swap-Enabled Exchanges

A swap-enabled exchange allows users to swap one digital token for another instantly. You send the tokens directly from your wallet and receive the equivalent in another token. There is no need to register or provide any identification to use this type of exchange.

Advantages:

• You can swap tokens for little or no fees.
• Trading is smooth and instant.
• No verification process is needed.

Disadvantages:

• Lacks support for advanced trading features, e.g., leverage. 
• More likely to have low liquidity than other types of exchanges.
• You are responsible for securing the assets in your wallet. 

Conclusion

We have explained what a crypto exchange is and its types. The most suitable one to use depends on your needs. For example, if you want to convert fiat to crypto, you must use a centralized platform. If you don’t want to give up your identity, you must use a decentralized platform, etc. 

ChangeNOW.io is a good example of an exchange. You can see our ChangeNOW.io review for more information. 

Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.