To be able to start buying and selling cryptocurrencies and also other digital assets, the most frequent method 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 commonest strategy for transacting in cryptocurrencies along with other digital assets is by a Cryptocurrency Exchange.

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

Centralized Cryptocurrency Exchanges (“CEX”)

Centralized cryptocurrency exchanges act as an intermediary from the buyer as well as a seller to make money through commissions and transaction fees. Imagine a CEX to get similar to a stock market but for digital assets.

Just like trading and investing websites or apps, these exchanges allow cryptocurrency investors to purchase and then sell digital assets on the prevailing price, called spot, or leave orders that will get executed if the asset reaches the investor’s desired price target, called limit orders.

CEXs operate having an order book system, which means that exchange orders are listed and sorted through the intended purchase or sell price. The matching engine with the exchange then matches buyers and sellers based on the best executable price because of the desired lot size. Hence, an electronic digital asset’s price is dependent upon the supply and need for that asset versus another, whether it be fiat currency or cryptocurrency.

CEXs pick which digital asset it is going to allow exchanging, which offers a small way of comfort that unscrupulous digital assets could be excluded in the CEX.

Decentralized Cryptocurrency Exchanges (“DEX”)

A decentralized exchange is another kind of exchange that enables peer-to-peer transactions from your digital wallet without going through an intermediary.

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

However, even though smart contracts are rules-based, deficiency of a middle man 3rd party implies that the person stays to their own, so DEXs are aimed at sophisticated investors.

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