Centralized cryptocurrency exchanges are a relatively new phenomenon. In fact, they have only been around for about four years now. They work in a fundamentally different way from decentralized cryptocurrency exchanges and peer-to-peer cryptocurrency markets. I’ll go over the basics of how centralized cryptocurrency exchanges work so you can decide which type is right for you!
What are Centralized Crypto Exchanges?
Table of Contents
Digital currency investors use centralized cryptocurrency exchanges to buy and sell digital assets. For most of these investors, the centralized cryptocurrency exchange is one of the most important vehicles for them to make money. The exchanges provide a way for people to buy and sell cryptocurrencies without having to go through a peer-to-peer market.
Centralized exchanges offer a more user-friendly experience and are typically more reliable than decentralized exchanges.
Third Parties
Centralized cryptocurrency exchanges are a common way to trade cryptocurrencies. These companies act as an intermediary between buyers and sellers, holding their funds in trust for them while they complete transactions on behalf of the client’s account holders with other participants through centralized order books that list publicly available buy/sell orders at competitive prices.
These services have been provided by third parties like banks which also take responsibility for savings accounts.
Centralized cryptocurrency exchanges offer a level of security and monitoring that individual trader cannot accomplish on their own. In the case of centralized exchanges, transacting parties trust not only that they will safely complete transactions but also find trading partners within this networked environment.
Advantages
- User friendly
- Reliable
Disadvantages
- Hacking risk
- Transaction fees
Decentralized Exchanges
Decentralized exchanges are a great way to trade without having your coins tied up in an exchange that can close down at any time. These types of platforms function as peer-to-peer marketplaces; users never need to submit their funds for escrow and transactions happen directly through smart contracts or atomic swap agreements between parties.
Examples of decentralized exchanges include bitShares, OpenLedger, EtherDelta, and AirSwap.
Advantages
- Immune from hacking risk
- Free from market manipulation
- Anonymity
Disadvantages
- Complexity
- Can’t deal in fiat payments
- Liquidity issues
Centralized Vs Decentralized Exchanges: The Difference
Centralized exchanges are the more popular choice for traders because they offer many features that decentralized ones do not. These include security, ease-of-use, and stability in comparison with their less mature counterparts
Centralization has its benefits such as protecting assets from being hacked or stolen while also ensuring user accounts can be accessed without issue when needed most by customers who place large trades on these platforms.
Currency Pairs
Many investors in the crypto space are relatively new and may turn to these types of exchanges because they offer a more accessible experience than other options available. Centralized exchanges also offer users the ability to use fiat currency to buy cryptocurrencies, which is convenient for those who are new to cryptocurrency investing and want to avoid having to first learn how to purchase these assets with Bitcoin Funding or Ethereum.
Normally centralized exchanges offer cryptocurrency/cryptocurrency pairing. This enables customers to trade their Bitcoin, for example; with another cryptocurrency.
Very few exchanges offer cryptocurrency/fiat currency pairing. Customers can trade, for instance, USD with any cryptocurrency (and vice versa).
Key Components of Centralized Exchanges
As cryptocurrencies continue to grow in popularity, there are new centralized cryptocurrency exchanges all the time.
However not every one of them will be successful and it’s not uncommon for these platforms to fold when they face too much competition from other traders who want access as well- which leads us back again – what makes an exchange successful?
A key component is trading volume; how many people use the service per day or week can make or break its future success!
And a successful centralized exchange is reliant on security. Despite the fact that no exchanges are completely secure from a malicious activity like hacks, some are safer than others.
Conclusion
Whether you’re a seasoned trader or just getting started, knowing which exchange is right for your needs can be difficult. There are many factors that go into this decision including what pairs will trade on it? How high does trading volume have to become before we consider a platform? And finally, security measures are taken by exchanges themselves!
To decide what cryptocurrency exchanges are best for you, it’s important to get all this information and more into one place. Fortunately, we’ve done the research and put our findings together in a simple infographic that should help you make an informed decision about cryptocurrency exchanges.
