A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.
What is an Exchange?
A Crypto exchange is a marketplace where cryptocurrencies (Bitcoin (BTC), Yearn.Finance (YFI), Ethereum (ETH), Ripple (XRP), Litcoin (LTC), Tron (TRX), Bitcoin Cash (BCH) etc) are traded for other Cryptocurrencies and also for traditional Fiat currencies.
The core function of an exchange is to ensure fair and orderly trading and the efficient dissemination of price information for any Cryptocurrency trading on that exchange. Exchanges give Cryptocurrency projects, a platform from which to sell Cryptocurrencies to the investing public.
Examples of Cryptocurrency Exchange includes the following:
They’re really plenty Exchangers out there but I personally recommend using any of the above exchanges for your crypto trading.
Types of Crypto Exchanges
There are Three different types of cryptocurrency exchanges:
- Centralized exchanges (CEX)
- Decentralized exchanges (DEX)
- Swap exchanges
What is a centralized exchange?
A centralized exchange (CEX) operates similar to the banks, transactions are controlled by the owners of the exchanges. Users of Centralized exchanges do not have control of their private keys.
As Andreas Antonopoulos said: “your keys, your Bitcoin. Not your keys, not your Bitcoin. But that doesn’t mean Centralized Exchanges (CEX) are not secured.
What is a decentralized exchange?
A decentralized exchange (DEX) is a peer-to-peer service which allows users to transact directly with other parties, without the supervision & involvement of a central authority.
One of the key aspects of DEX´s it´s censorship resistance As any application built on a decentralized blockchain it can’t be shut down unless the entire chain gets shut down, this is important as many countries have banned or heavily restricted cryptocurrency use.
Also Dex´s can facilitate faster and cheaper transactions as code does all the validations there´s no middleman taking a cut.
it’s not an easy undertaking to decentralize every aspect of an exchange marketplace and while some have nailed down the basic functionalities of swapping coins with other users the more advanced functionalities are by and large not present someone used two robust and complex centralized stock trading platforms would be woefully disappointed moving to a decentralized cryptocurrency exchange so in that aspect Dex is still have some catching up to do with centralized exchanges that can generally provide more robust features and a better user experience Dex’s are no doubt an important part of the future of cryptocurrency
What is a Swap exchange?
Swap exchanges are exchanges which have simplified the process of trading, where you simply send them a specific currency and then they will swap it and take a small fee and then send you the new cryptocurrency to whichever address you selected. This convenience comes at a cost. Traditionally these exchanges have higher fees than traditional crypto exchanges. Also some people don’t like signing up on traditional crypto exchanges and going through the KYC (Know your customer) process , usually if you´re trading small amounts Swap exchanges won´t require KYC.
It’s an easy way to consolidate several tokens and or currencies into one or to take advantage of a buying opportunity quickly without having to waste time waiting for KYC verification, etc.
Cryptocurrency Wallet
The essence of the crypto wallet is to help users manage and use the private key conveniently and securely. Depending on whether the private key is stored basically, we can divide crypto wallet into a centralized wallet and a decentralized wallet.
Centralized wallet: The private key is not owned by the user, but in the centralized server. The funds are usually entrusted to the server. When the centralized wallet is attacked by the hacker, the user may suffer unnecessary losses.
Decentralized wallet: The private key is independently controlled by the user and the assets are stored in the blockchain. Decentralized wallets are hard to be attacked by hackers, and users don’t have to worry about self-stealing by wallet service providers. However, if you forget your password and the private key/key phrase is lost, the wallet will not be able to help the user recover and the funds will be lost forever.
READ ALSO: Forex Trading Explained for Beginners, What It Is And How It Works
Do your own research (DYOR) before joining any Crypto Exchange
It is important to do some work and research before joining any crypto exchange. Below are some of the things to lookout for when choosing an exchange:
- Reputation As most sites on the services on the internet, the best way to gauge for reputation is credibility is to look for independent reviews from individual users, also from other industry websites.
- Trading Fees If you´re a frequent trader this point takes even more relevance, Fees wildly vary between exchanges, take your time understanding the deposit & trading and withdrawal fees. You should easily find any fee-related information within the exchange website.
- Deposit Methods Check beforehand what type of deposit methods are available on the exchange and its fees, ( Debit Card, Credit Card, Wire transfer, Paypal ). It´s worth noticing that depositing with a credit card will always come at a premium due the high risk of fraud and high processing fees, also the exchange will require you to do KYC. Traditional wire transfer has the inconvenience of usually taking a long time for the bank to process.
- Geo Restrictions Unfortunately in this day and age, the policies regarding Cryptocurrencies greatly vary from country to country, therefore some exchanges are only accessible from certain countries. Before joining, make sure no restrictions apply to the country you’re currently living in , and that you have full access to all the exchange functionality.
- Available Trading Pairs Always check for the available trading pairs and see if it covers what you´re looking for. Some exchanges focus on new projects that are not yet that well known, and are not easily accessible, some only trade a few pairs and only really established tokens like Bitcoin, Litecoin, Ethereum.
- Liquidity is the ability of a cryptocurrency to be converted into cash or other coins without compromising cryptocurrencies’ value. A high liquidity indicates a vibrant and stable market where participants can trade quickly, easily and at fair prices.
- Security Taking into account that most exchanges are centralized in nature, you will be reliant on their security measures. When considering an exchange at a very minimum, the exchange should offer.}
- Cold storage wallets for a minimum of 80% of the client funds
- Multi-sign transactions for withdrawals
- Two-Factor Authentication
- Upon deposit, transfer Crypto funds directly to hardware wallets
- SSL Site Security Certificate
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