Every day cryptocurrency developers are adding new crypto exchanges into the flourishing industry of cryptocurrencies is no secret to people. But ever wondered what makes them do so? Are cryptocurrency exchange developers tired of the status quo or are either more interested in playing a frontline role in the creation of crypto exchanges? Well, the actual reason can be numerous but before diving deeper into the world of cryptocurrencies, you must gain a clear idea regarding the different types of cryptocurrency exchanges present in 2022.
What are crypto exchanges?
A crypto exchange is a platform that lets people so trade in cryptocurrency assets, which in simple words is a stock exchange where you can trade in cryptocurrencies. Cryptocurrency is a digital asset or virtual currency that is secured by the means of cryptography, the reason for popularity behind such secured digital assets is because they are nearly impossible to counterfeit or double-spend.
At present, there are over 12,000 cryptocurrencies exist and they are growing at an astonishing rate, while some popular ones are Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Cardano (ADA), and many others. The reason behind cryptocurrency exchange development is to facilitate the trading of cryptocurrencies can be done in fiat to cryptocurrency and cryptocurrency to cryptocurrency transactions. Mainly, crypto exchange platforms are of three types – centralized, decentralized, some hybrid platforms too exist, but they are very few in number.
How many different types of crypto exchanges are there?
There are mainly three types of cryptocurrency exchanges operating at large –
Centralized Cryptocurrency Exchanges (CEX)
Centralized Cryptocurrency Exchanges are the most popular and traditional cryptocurrency exchanges, functioning as a third-party intermediate between a buyer and a seller to facilitate trade. According to some sources, CEX are considered a more reliable platform among all crypto exchanges, as they are controlled and governed by a centralized organization. The majority of such CEX facilitate trades from either fiat-to-cryptocurrency or crypto-to-crypto tender. Some well-known popular CEX are – Kraken, Coinbase, WazirX, and Gemini.
Decentralized Cryptocurrency Exchanges (DEX)
Decentralized Cryptocurrency Exchanges are those platforms that serve as an alternative to the traditional, Centralized Exchanges. DEX lets users execute transactions on a peer-to-peer basis without the need for any third-party arbitrator or an intermediary. These DEX are preferred by those users who don’t want to depend upon a company or a service provider to control the assets of a customer. In DEX all trades are controlled and monitored by an automated process that self-executes without any sort of central machinery presence. It is observed that trade over DEX is restricted to fiat currencies for cryptocurrencies, as many of DEX lack facilities which makes them behind in terms of user experience. Some well-known and popular DEX functioning are – io, Barterdex, Blocknet, and AirSwap.
Hybrid Cryptocurrency Exchanges (HEX)
Hybrid Cryptocurrency Exchanges are the newest among the trading platforms to arrive that are free from surcharge fees and gas fees. The primary goal of HEX is to address the issue of high trading fees faced by users over DEX. HEX automates the functions by employing Smart Contracts to maintain the integrity of the trade, as there is no centralized figure to impose any restrictions. However, HEX are much lesser popular among users as this is due to some drawbacks as they suffer from some lags and are much slower than both CEX and DEX. Some popular HEX to exist are – Nash and Qurrex.
How crypto exchanges work?
Crypto exchanges work to match prospective buyers and sellers, which is somewhat similar to a bank doing business of borrowing and lending to people. Just like you begin within the bank by registering yourself to open an account there. Here in crypto exchange, you need to start by completing a KYC (Know Your Customer), and once you are registered and authenticated you can transfer funds. In the case of DEX and HEX, the process of KYC does not apply also, doing transactions would depend upon which platform you choose, which can be either fiat or digital currency to the platform. Now, the transferred funds can now be utilized to make a purchase of an asset.
How to choose a crypto exchange
Cryptocurrency is a sensitive subject for many and especially for those who are not well-versed in it, as they are highly volatile in nature. Also, there have been instances where they have succumbed to hacking activities. Due to that, it is highly advised to consider a few factors when choosing a cryptocurrency exchange for trading activities:
- Transaction limits
- Fees
- Payment methods
- Restrictions based on region
- Reputation
Conclusion
Another thing to note is that not all crypto exchanges operate in website mode, as there are some crypto exchanges that function in mobile-only mode. While some DEX and HEX require powerful, specialized computers, and each has varying levels of security and associated fees.
You may be interested in: What Is a Cryptocurrency Exchange?