The cryptocurrency exchange is a place that allows trading cryptocurrencies through a trading platform. These are platforms where people can exchange one cryptocurrency for another one, and even for fiat currencies, for that matter. Their operation is very similar to a traditional financial exchange. The cryptocurrency exchange’s primary operation is to allow the buying and selling of digital assets as well as other assets (fiat currencies). Note that digital cryptocurrency (DCE) is another reference to a cryptocurrency exchange. These exchanges can be like a stock exchange or a currency exchange.
Cryptocurrency Exchange Explained
As mentioned, these exchanges are similar to traditional financial exchanges. To clearly understand this, we may bring out the differences between the crypto exchanges and the conventional exchanges. I a cryptocurrency exchange, buyers, and sellers trade based on the current market price of the cryptocurrencies. Here, exchanges play the role of the middleman. Just like on the stock market, there is some fee charged on each transaction.
Some exchanges deal only with cryptocurrencies, while others that deals with the exchange of both cryptocurrencies and fiat currencies. For example, in these exchanges, you can trade the US dollar for Bitcoin.
Cryptocurrencies are typically unstable in terms of value and sourcing. For instance, cryptos like Bitcoin have been under major dispute events where the value of Bitcoin changed dramatically in a very short time, or incidents where the major exchanges went down due to thefts and frauds.
Talking about the most popular and reliable exchanges, Coinbase’s GDAX (AKA Coinbase Pro) is an example of that. Also, there are exchanges run by third parties where there is a middleman, and decentralized exchanges that mimic traditional exchanges like IDEX. In decentralized systems, trading is based on smart contracts and is not powered by a centralized third party system for the most of it. Trading with centralized exchanges will require a lot of information to be produced. However, they do allow the trading of fiat currencies. DEX exchanges, one the other hand, require lesser information but they do not allow exchanging of fiat currencies.
Classification of Cryptocurrency exchanges
Based on the exchange’s organizational hierarchy and overall controlling bodies, we can classify them as Centralized Exchanges and Decentralized Exchanges.
The Working Of A Centralized Cryptocurrency Exchange
Since these exchanges are centralized, they are run by a third-party or other organizations. More like a bank for exchanging fiat currencies. Here, the middleman takes control over whatever the assets are being traded on the network.
The Working Of A Decentralized Cryptocurrency Exchange
A decentralized exchange (DAX) is a cryptocurrency exchange which operates without the existence of a third party, or a central authority. In simple terms, decentralized exchanges allow peer-to-peer trading of cryptocurrencies. However, there have been signs that these exchanges have been suffering from low trading volumes and market volatility. And to solve this issue, protocols like 0X, Stellar, and Bitshares are being implemented.
Top Cryptocurrency Exchanges
There are several crypto exchanges to from, but not all have the features and technicalities. Below are the exchanges we have listed out by considering factors like user-friendliness, accessibility, security, and fees.
These exchanges and many more are discussed in other articles, and you may find them here. So watch out this space for more great crypto content.