What are crypto exchanges?
Crypto exchange is also called digital currency exchange. It allows customers (investors) to trade cryptocurrencies for other fiat money. Crypto exchanges can be divided into centralized exchanges or decentralized exchanges.
Centralized Exchange (CEX)
Popular centralized exchanges include Binance, Coinbase, FTX, Kraken, Kucoin, Huobi Global, OKX, and Crypto.com. Among them, Binance is the largest cryptocurrency exchange globally by trading volume. Recently, Binance's 24-hour trading volume hit $17.1 Billion.
In addition, Coinbase's listing on Nasdaq also marks the growing acceptance of cryptocurrencies. FTX and Kucoin are also loved by users in North America, Australia, and Europe and entered the top 10 list of centralized exchanges on CoinMarketCap.
Huobi Global and OKX had a large share in the Chinese crypto-market before 2021; however, after the Chinese government defined cryptocurrency trading, mining, and other crypto-related activities as illegal in 2021. The two major exchanges have withdrawn from the Chinese market.
How to trade crypto by using fiat money in centralized exchange?
Usually, centralized exchanges accept users to deposit fiat money directly into an exchange using their credit card. Generally, the large centralized exchanges mentioned above will teach users to use credit cards to buy cryptocurrencies.
Moreover, P2P trading is a popular way to exchange cryptocurrencies between users. P2P trading refers to relying on a centralized exchange platform; users on the exchange can trade cryptocurrencies with each other for their own fiat money. Also, large centralized exchanges such as Binance and Coinbase have a course to teach users to use P2P trading. Furthermore, users can also use wire transfers in a centralized exchange.
Decentralized Exchange (DEX)
The decentralized exchange allows crypto traders to directly conduct P2P cryptocurrency transactions without needing an intermediary such as Binance or Coinbase. These centralized exchanges, such as Binance and Coinbase, are replaced by blockchain distributed ledger technology.
Popular decentralized exchanges include dYdx, Uniswap, Pancake Swap, Kine Protocol, Honeyswap, ApolloX DEX, and Biswap. Some typical decentralized exchange operation methods include smart contracts or order book relaying. Decentralized exchanges do that entirely through automated algorithms instead of the conventional approach of acting as financial intermediaries between buyers and sellers.
The advantages of Decentralised exchanges are: it decreases the risk of hacking centralized exchanges; moreover, decentralized exchanges can prevent price manipulation or fake trading volume caused by wash trading; most importantly, a decentralized exchange is more anonymous than centralized exchanges which implement KYC (know you customer) requirements.
How to trade crypto by using decentralized exchanges?
Firstly, DEXs require users to have hot crypto wallets like Metamask and Phantom. Different decentralized exchanges may require various wallets built on different blockchain networks. Generally, these DEXs' web page will notify their users to use what crypto wallet.
Users first need to start using these wallets and connect them to DEXs; then, they can begin trading in DEXs.
Differences between CEX and DEX
In order to get on a centralized exchange (CEX), the asset must go through a listing process and satisfy certain requirements. In addition, the asset must have the sufficient trading activity to justify being listed on the exchange. By contrast, you can list anything on a decentralized exchange (DEX). This means that there is more risk involved, but it also means that you might trade new, highly-demanded assets. Therefore, choosing CEX or DEX depends on your personal preferences and risk tolerance. If you prefer security and stability, you should consider CEX. Otherwise, DEX may be the right choice if you are willing to take on more risk to access a broader range of assets.
