In the ever-expanding coin and token market, picking from the right cryptocurrency exchanges is nearly as important as choosing the right coins for investment. For reasons of user experience, variety of cryptocurrencies, and tools like leverage, the “best” exchange is ultimately a personal preference.
Security is another matter, however, and regardless of the exchange you decide to invest through, safety should never be a compromise. The most popular exchanges, regardless if they’re centralized or decentralized, are often the safest for this very reason.
The first cryptocurrency exchanges were all centralized. Platforms like Coinbase introduced the world to an easy method for buying cryptocurrencies with fiat, and with a layout instantly familiar to anyone who had ever bought stocks.
These exchanges were largely responsible for the boom in cryptocurrency’s popularity and made it easy for retail investors to pile in and use their money to catapult prices higher. Each exchange represents a gate into the world of blockchain and cryptocurrency, and they have only gotten better as the industry matures.
Like any other component of the young blockchain space, exchanges are also constantly evolving. Along with the move towards decentralized applications (dApps) and decentralized autonomous organizations (DAOs), cryptocurrency exchanges have pursued a model of pure decentralization. Decentralized exchanges are different from their centralized counterparts in many ways, but its ultimately up to the trader which is best.
Centralized Cryptocurrency Exchanges
Centralized cryptocurrency exchanges are hosted by a third party through the web, enabling traders to exchange their fiat money (Dollars, Euros, etc.) for bitcoin and other cryptocurrencies. These exchanges offer reliable service, safety, and a plethora of tools to aid beginner and advanced traders. They can handle a lot of user traffic at once and remain stable, require little downtime, and provide enhanced liquidity.
The company behind the centralized exchange is also the system’s single authority, and therefore must keep all the private keys for every user wallet. This responsibility, and the presence of fiat deposits and withdrawals mean that they’ll also need to know the identities of all users and comply with regulatory standards.
Experienced bitcoin enthusiasts know that a wallet is only ever 100% safe if you, and only you, know its private key. While centralized exchanges are as secure as any other finance portal, airtight surety isn’t attainable.
- Reliable, safe service hosted through a third party
- High liquidity and volume
- The best trading tools and features
- Buy cryptocurrency with fiat money
- Users don’t control private keys
- Some downtime
- Zero anonymity
- More susceptible to breaches
Decentralized Cryptocurrency Exchanges
A decentralized exchange (DEX) is a blockchain service where users connect to each other directly to trade. Like other blockchain platforms, an automated algorithmic system is used to pair the appropriate traders together, and process their trade using power from the network’s vast number of peers.
Traders using a DEX are responsible for holding their own funds and keeping their wallet’s private key (and their identity) safe. This makes it safer and less expensive to use. Using a DEX might be easy for those who are already familiar with more advanced blockchain ideas, but uninitiated traders might find a decentralized exchange complicated.
Just as there are different types of blockchains and cryptocurrencies out there, decentralized cryptocurrency exchanges also come in many varieties. Some of them use a sort of crypto-derivative system whereby traders are using proxycoins, only for the results of the trade to be settled out of their individual wallets later.
Some decentralized exchanges employ an escrow system that requires multiple signatures before processing a trade. However intuitive the model, DEXs can suffer some annoying downsides, like lower liquidity, a steeper learning curve, and relatively basic utilities.
One of the largest issues with decentralized exchanges is that they don’t accept fiat money deposits, because getting fiat onto the blockchain requires bank cooperation. In turn, this requires users to be identified and all data to be stored in compliance with AML and KYC rules.
- Users control their private keys
- Users remain anonymous
- Cannot be hacked or breached
- Zero/low fees
- Integration with hardware and software wallets
- Lower liquidity
- Comparatively basic features
- Harder to learn and master
- Users tasked with processing and verification
Choosing an Excellent Cryptocurrency Exchange
We’re in a time when cryptocurrency is much less of a Wild West than it once was. Accordingly, it’s hard to go wrong when you pick from any of the popular, well-supported cryptocurrency exchanges—whether offered by a leading cryptocurrency institution or hosted among fellow peers on the blockchain.