What Are The Different Types Of Cryptocurrency Exchanges?
A cryptocurrency exchange is where crypto holders trade cash money for crypto coins. In fact, some crypto exchanges also allow you to trade crypto coins for other crypto coins of equivalent value. For instance, you can exchange $100 worth of Ethereum for Bitcoin worth $100.
Before you start trading on the top crypto exchange, here's what you need to know about the types of cryptocurrency exchanges.
Right now, cryptocurrency exchanges can be classified into three types as mentioned below:
- CEX or centralized cryptocurrency exchange
These are almost similar to conventional stock exchanges. These are very user-friendly and have a smooth interface. Here, a third-party entity, i.e., an organization, provides a platform for buyers and sellers to trade. You can use your funds via credit card or debit card and net banking to continue trading seamlessly. Here, you have faith in this entity and let all the transactions happen through the platform controlled by the entity. In fact, if you have brilliant customer support in mind, CEX is your go-to option for crypto trading. If you have funds in your wallet which is handled by CEX, no wonder, you have got to fill out a KYC (Know-your-customer) form first. However, note that these exchanges are vulnerable to getting hacked and many investors hate the idea of sharing their personal details with a third-party entity. In most centralized crypto exchanges, crypto/crypto and even crypto/fiat pairings are available. So basically, you now have a question in mind about how these exchanges work? The process is simple: You trust a third-party crypto exchange to handle all your assets. Next, they take the whole responsibility of holding it for you, just like a bank keeps all your money. You keep an eye on the prices of crypto coins on the exchange. Now, it is your choice whether you want to trade one crypto for another or fiat currency for crypto (depends on whether your CEX allows it or not). In order to make the desired purchase, you have to place the order. Now, once you have placed the order, the exchange brings a suitable seller according to your purchasing requirements. This is how you can enjoy crypto shopping.
- Decentralized cryptocurrency exchange or DEX
These types of cryptocurrency exchanges follow the essence of what a cryptocurrency should be like. These only allow peer-to-peer transactions. There is no question of a third party getting into the system. Here buyers and sellers interact with each other anonymously, and transactions happen. Crypto holders sometimes prefer to trade on these crypto exchanges because these are not so easily hackable. Not many people operate on these crypto exchanges. This happens to be a problem when it comes to low liquidity and low volumes because your money might get stuck for an indefinite period. DEXs can be very complicated for novice crypto holders to use. However, some crypto exchanges (DEXs) provide a user-friendly environment for crypto holders to trade effortlessly by allowing them to directly connect to their crypto-wallet.
- Hybrid cryptocurrency exchanges or HEXs
Willing to know about the next-gen crypto trading marketplace?
Let us tell you about the Hybrid type. HEXs aim at providing the pleasures of both worlds (DEX and CEX). You will have the opportunity to enjoy the benefits of both DEX and CEX in a hybrid crypto exchange platform. To be more precise, hybrids will have the high-performing functionality and liquidity of a CEX coupled with the privacy and security that a DEX assures. Many crypto enthusiasts and investors believe that this type of exchange will define the high-level of futuristic trading experience with cryptocurrency. The first hybrid crypto exchange was launched back in 2018 with experts having expertise working in Forex markets, developers of trade terminals, and founders of successfully operating stock and futures exchanges. The way they clubbed the vital elements of centralized and decentralized cryptocurrency exchanges was exemplary because a new-generation cryptocurrency exchange was created.
People jumping on the bandwagon of crypto trading love security, it is a fact, and that is why maximum crypto trading takes place on CEX. However, HEX has been developed to mitigate the limitations of CEX and DEX. So, if you are planning to start crypto trading, you better weigh all the pros and cons of all types of exchanges before getting started because it matters. The crypto world waits for you!
