To be able to start buying and selling cryptocurrencies and other digital assets, the commonest strategy is to transact with Crypto Exchanges. Cryptocurrency exchanges are privately-owned platforms that facilitate the trading of cryptocurrencies for other crypto assets, including digital and fiat currencies and NFTs.

Key Highlights

The most frequent way of transacting in cryptocurrencies and other digital assets is by a Cryptocurrency Exchange.

You will find Centralized and Decentralized Cryptocurrency Exchanges, and each offers advantages and drawbacks.

Centralized Cryptocurrency Exchanges (“CEX”)

Centralized cryptocurrency exchanges become a middleman from a buyer plus a seller making money through commissions and transaction fees. You can imagine a CEX to become much like a stock trading game however for digital assets.

Much like trading websites or apps, these exchanges allow cryptocurrency investors to get and sell digital assets in the prevailing price, called spot, as well as to leave orders which get executed once the asset reaches the investor’s desired price target, called limit orders.

CEXs operate utilizing an order book system, meaning that purchase and sell orders are listed and sorted with the intended sell or buy price. The matching engine of the exchange then matches consumers in line with the best executable price because of the desired lot size. Hence, an electronic digital asset’s price will depend on the supply and need for that asset versus another, whether fiat currency or cryptocurrency.

CEXs pick which digital asset it’ll allow exchanging, which gives a small way of measuring comfort that unscrupulous digital assets may be excluded from the CEX.

Decentralized Cryptocurrency Exchanges (“DEX”)

A decentralized exchange is the one other form of exchange that enables peer-to-peer transactions directly from your digital wallet without dealing with a middle man.

These decentralized exchanges count on smart contracts, self-executing bits of code over a blockchain. These smart contracts accommodate more privacy and less slippage (another term for transaction costs) than the usual centralized cryptocurrency exchange.

Conversely, despite the fact that smart contracts are rules-based, deficiency of an intermediary 3rd party signifies that an individual stays to their own, so DEXs aim at sophisticated investors.

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