The Benefits of exchange in cryptocurrency are numerous, this is because digital asset exchanges have become very common due to the increase in cryptocurrency enthusiasts and digital currencies in general.
Cryptocurrency Exchange offers a platform that makes the exchange of assets between buyers and sellers of cryptocurrency not just possible but very efficient and easy.
This article will give you an overview of cryptocurrency exchange and its benefits.
If you are new to the crypto space or just want to deepen your knowledge of cryptocurrency, then you will find this article of immense help.
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Overview Of The Crypto Exchanges
A Cryptocurrency exchange is a digital marketplace for the buying and selling of digital assets. These platforms function similarly to currency exchange, their defining feature being that they operate completely online.
Crypto exchanges serve as the marketplaces where buyers and sellers meet to transact business.
If I intend to purchase a cryptocurrency, for example, it requires a crypto exchange such as Coinbase or
Binance to connect me with sellers of that particular cryptocurrency.
I can then buy that cryptocurrency using another digital asset or Fiat money for the purchase.
The transaction will require a fee charged by the Crypto exchange, which is a significant part of how they earn returns.
Types Of Cryptocurrency Exchanges
Basically, there are two types of Cryptocurrency Exchanges; Centralized Exchanges (CEXs) and Decentralized Exchanges (DEXs).
- Centralized Exchanges (CEXs)
A Crypto Exchange controlled by a singular (central) group or entity is known as a central exchange(CEX). This type of exchange generally has higher user-friendliness and adoption rate in addition to their relatively lower liquidity and concentration risk.
They also support more fiat currencies compared to decentralized exchanges. Examples include; Binance, Coinbase exchange, Kraten, Bybiy, etc.
- Decentralized Exchanges (DEXs)
This type of Exchange on the other hand is not controlled by any central system but rather a technological protocol (smart contracts) that enable people to make decisions.
DEXs are an application of decentralized finance (DeFi) as they allow a peer-to-peer mode of interaction between buyers and sellers.
The major pros of decentralized exchanges are their higher privacy level (as one would not have to share as much personal information compared to CEXs), relatively higher security, and lower transaction rates.
Exchanges like Uniswap, dYdX, Kine protocol, and DODO are examples of decentralized exchanges.
It is worthy of note however that certain exchange platforms combine both centralized and decentralized forms of exchange, making some authorities classify them as the third type of crypto exchange known as Hybrid Exchanges (HEXs).
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How Crypto Exchanges Works
Cryptocurrency Exchanges function by serving as digital marketplaces, they create and maintain an enabling environment for the buying and selling of digital assets.
Operating on a Crypto exchange involves creating and funding your account, the deposit can be done using local (fait) currencies like the US dollar. The available balance can then be used to purchase the
cryptocurrency of choice. Digital currencies can also be traded.
In a decentralized exchange environment, one can sell the Cryptocurrency in possession for a price they stipulate, provided there are buyers who agree to buy at that price.
Advantages Of Cryptocurrency
- 24/7 Operation
As mentioned earlier, one of the hallmarks of Cryptocurrency Exchanges is their online nature, this confers on them the advantage of availability almost around the clock.
- Ease of Use
Most Cryptocurrency Exchanges are pretty easy to use. One requires very little experience to be able to operate them efficiently.
Generally, centralized exchanges are more user-friendly than decentralized exchanges.
- Lowered transaction fees
The fees charged by Cryptocurrency Exchanges are generally low. This is seen more evidently in decentralized exchanges.
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- Secure interface
Whether in a centralized or decentralized exchange system, the security of the system is of utmost priority!
- Earnings via arbitrage
The practice of taking advantage of price differences between markets is known as currency arbitrage.
These price differences arise because not all exchanges have the same liquidity rate. Some traders can therefore take advantage of these price differences across Exchanges to trade their assets and make earnings.
It is also a practice among traders to buy digital assets and hold them in their wallets until a timed hike in
the price of those assets, they then sell these assets to make more profits.
You are reminded however that trading comes with risks, ones that should always be held in mind.