Cryptocurrency exchanges - top facts you need to know

Crypto exchanges are your key to foray into the crypto investing and trading world. You can go old school and sign up with OTC dealers or brokers but just remember- crypto exchanges are especially designed for crypto activities. Thus, you will find a far better and more organized service with crypto exchanges than with other crypto trading platforms.  Cryptocurrency exchanges are located all across the world. Most of the crypto exchanges accept users from other countries. As of 2022, there are 600+ cryptocurrency exchanges all across the globe.

How does it work?

Crypto exchanges are a platform from where you can purchase crypto for investment or trading. If you want to trade, the exchange will match you with the buyer/seller and execute the trade on behalf of the trading parties. The oldest form of crypto exchanges executes the trade with an order book. However, the newer ones, take the help of AMM (Automated Market Maker) protocol that is backed by smart contracts. The incorporation of smart contracts makes the trade automatic and faster, once certain pre-set conditions are met. It also eliminates counterparty risk in trading.

Added to trading, crypto exchanges today also allow staking activities. If you are interested in staking and don’t want to invest in DIY staking, you can bank on crypto exchanges.

Crypto exchange fees

The crypto exchanges generally charge a list of fees, such as account fees, mining fees, transaction fees, spot trade fees, staking fees, and so on. There is another kind of fee, called tiered crypto transaction fees. The tiered category belongs to the taker and maker scheme, and is determined on the basis of trading volume of a trader. As per the crypto industry jargon, the “maker” is the seller while the “taker” is the buyer. The maker fees are usually lesser in comparison to taker fees.

Payment methods

Much to the convenience of the crypto investors and traders, the crypto exchanges accept a wide range of payment methods. From wire transfer to bank transfer to debit card to credit card, most of the crypto exchanges accept all. Recently, some exchanges have also started accepting online payment apps as well.  It’s to note here that card payments are almost instant but also charge higher transaction fees. However, some crypto exchanges do not accept fiat payment. In that case, the only form of payment is through cryptocurrencies.

Crypto exchange- types

When it comes to crypto exchanges, there are primarily two types- CEXs aka Centralized Exchanges and DEXs aka Decentralized Exchanges. A new type of crypto exchange has also emerged lately, namely, Hybrid crypto exchange.

Centralized crypto exchange

A centralized crypto exchange is the oldest form of crypto exchanges. Centralized platforms, essentially, are operated and administered by a single centralized entity. The platform follows KYC and AML procedures to ensure that only the genuine users get to register. Akin to traditional trading exchanges, the centralized ones conduct the trade through order books. It’s also to note here that centralized crypto exchanges exercise complete control over the custody of user funds.

Here is a list of both upsides and downsides of centralized crypto exchanges.

The good part:

●        High liquidity

●        Fast processing speed

●        Follows KYC procedures to bypass imposter traders

●        Allows fiat payments

The cons:

●        Does not allow transfer of fund to 3^rd party wallet

●        Prone to hacking attacks

●        High fees

Decentralized crypto exchange

The decentralized crypto exchanges operate in a decentralized environment and are not governed by a single centralized entity. The DEXs conduct the trade through the help of AMMs that are powered by the revolutionary smart contracts. The DEXs match the trading parties in an anonymous setting where both parties don’t get to come into direct communication with one another. This is unlike P2P marketplaces where the trading parties are able to interact with one another “directly”. Unlike the centralized counterparts, the DEX crypto exchanges do not exercise control over user funds.

Here is a list of both upsides and downsides of decentralized crypto exchanges.

The good part:

●        More flexibility compared to CEXs

●        Faster registration as DEXs don’t follow time-consuming KYC procedures

●        Less fees

●        Assures mighty defense against hacker attacks

The cons:

●        Low liquidity

●        Slow processing

●        DEXs don’t always accept fiat payment

 

Hybrid crypto exchange

As the name says, this type of crypto exchanges is a combination of best of both CEXs and DEXs. Thus, the hybrid platforms are faster and also command higher liquidity than DEXs. On the other hand, unlike the CEXs, the hybrid ones assure strong defense against hacking attacks. Not just that, hybrid ones also charge less fees in comparison to CEXs.

Tips to choose the right crypto exchange

We will wind up the post with expert tips on selecting the right crypto exchange.

Geographical permission

As mentioned above, most of the crypto exchanges allow traders from other countries. However, every exchange you find online might not accept traders from your specific country. Put simply, although crypto exchanges work with international customers, they don’t always cover all the countries equally. Thus, always check geographical restrictions followed by your chosen crypto exchange before you sign up with the platform.

Security quotient

Crypto crimes are on high and crypto exchanges are the most common targets of the hackers. Thus, you need to make sure that your chosen exchange is extremely particular about adopting the strictest of security measures. A credible crypto exchange should adopt advanced security measures like 2-FA and cold wallet storage. If the exchange had been under hacking attack previously, make sure the exchange took proactive steps to return the lost funds to traders.

Read more: Buy Sell Invest in Bitcoin Cryptocurrency With MultiBank Group

Competitive fees

The range of fees might vary from exchange to another. So, you must compare fees charged by crypto exchanges beforehand to ensure that you land up with a credible exchange with the most competitive fees. Some of the exchanges offer discounts in trading fees if you use their native token for payment for activities within the exchange.

Round-the-clock customer support

You would know that you would be able to trust a crypto exchange if the platform is willing to provide you 24/7 customer support.