How do cryptocurrency exchanges work: All you need to know


NEU-DELHI: The thoroughly decentralized character of the cryptocurrency compared to a well-regulated exchange is an important incentive for investors: They can act free of regulatory norms that are the hallmark of exchanges.
But is crypto trading always decentralized? How do you work? We’re expanding some of the key features of crypto exchanges.
A cryptocurrency exchange is an online platform where people convert their fiat money (government issued currency) into cryptocurrencies and vice versa.
Depending on the customer’s ease of use, competitive prices, and government regulation, cryptocurrency exchanges can be of three types:
1) Centralized Exchanges (CEX) – Centralized exchanges are the most accepted and widely used form in the world.
Recently, the demand from institutional investors for a centrally clean and secure environment to trade has led Eurex, an international exchange, to open its first regulated bitcoin derivatives market in Europe.
Centralized exchanges, as the name suggests, are fully regulated and controlled by a central authority. A centralized exchange is just like the exchange. They are managed by a company that offers crypto trading for fiat to crypto or crypto to crypto.
* In the CEX, the exchange acts as an intermediary or investor custodian, holding investors’ money like a bank.
* Trading in CEXs is done through the exchange’s database, such as the Coinbase or Binance database, making them more vulnerable to cyberattacks.
* CEXs do not give out private keys to access wallets and require KYC regulations and verification.
* They have high liquidity and enable faster transactions.
* Some CEXs that offer fiat / crypto pairings are Coinbase, Bitterex, and Kraken.
* Some CEXs that offer crypto / crypto pairings are Binance, Huobi, and KuCoin.
2) Decentralized exchanges or DEXs, on the other hand, are a peer-to-peer marketplace that connects buyers and sellers or investors directly in order to conduct transactions without intermediaries.
DEXs work on the core principle that cryptocurrencies were designed for: no controls and regulations from the authorities.
Here trading takes place via blockchain, which has some advantages:
* They cannot be easily hacked or shut down by the government.
* Provide investors with security, transparency and greater control over trading, and allow users to have privacy.
* You have an automated process that controls all transactions and does not rely on a company to control an investor’s assets.
Because of their limited functionality and lack of government controls, they are less popular and therefore have lower trading volume, liquidity, and slower transactions.
* Due to a lack of regulation, funds sent to the wrong wallet cannot be canceled or accessed.
They only offer crypto-to-crypto trading.
* IDEX is the easiest to use decentralized exchange for trading Ethereum tokens and Waves DEX is another for trading Bitcoin and Litecoin.
3) The third category is the hybrid exchange. This is supposed to be the next generation crypto trading marketplace as it bridges the limitations of both forms of exchanges by merging the privacy and security of DEXs with high liquidity, fast transaction and regulated framework of CEXs.
Some of the advantages of hybrid exchanges are:
* They contain solutions for blockchain technology.
* Investors’ funds are stored in cold wallets, making them less prone to cyber theft.
* They provide real-time access and ensure compliance with digital laws.
* They allow users to keep their funds safe even when a third party is involved in trading.