The use of Crypto Currency is becoming ever more prevalent. As more new users decide to look into this new asset, education will be a key component in making sure they get the most out of their investment.
In the spirit of giving new users a starting point, this post will focus on the basics of crypto exchanges so that novices will be pointed in the right direction.
A crypto exchange is a place where users can trade digital currency for other coins or traditional currency such as dollars or euros.
Without the use of an exchange, users would have to go to the trouble of finding someone interested in what they have, then settling on an exchange rate with that individual, and then sending the currency directly to each other’s wallets. Exchanges just make everything easier for all parties involved. Choosing the right exchange for your needs could be a bit tricky as there are literally hundreds of different options available. So, how do you go about deciding which to use?
Types of crypto Exchanges
There are three types of crypto exchanges: Centralized, Decentralized, and Hybrid.
Centralized Crypto Exchanges
Centralized exchanges are usually more user-friendly. Their use is more widespread, they tend to have more readily available customer support and even have insurance in the event of a platform failure.
Centralized exchanges also use know your customer practices in order to comply with anti-money laundering regulations. If you have ever opened a bank account this process will feel familiar due to the types of questions asked.
One thing to keep in mind is that Centralized Exchanges are more vulnerable to hackers.
- Decentralized Crypto Exchanges
Decentralized exchanges are more in tune with the spirit of Bitcoin in that they have no central point of control. The servers are located all around the world, meaning that one computer being attacked does not compromise the entire system. This is enough for some to prefer decentralized over centralized.
The registration process is also less strict than with centralized exchanges, so if sharing your personal information makes you uncomfortable, decentralized may be best for you.
This platform isn’t without its own drawbacks, however. While more secure, they tend to have a lower trading volume and lack the customer support of centralized exchanges.
- Hybrid Crypto Exchanges
Hybrid exchanges are a brand new thing. These platforms seek to provide the best of both worlds. Greater functionality, as well as security, are the aim here. Hybrid Exchanges are still new and because of this, they are unproven. High costs, limited assets, and limited scalability are the possible downsides of these exchanges.
Just like with your bank account, you will notice that crypto exchanges charge a series of fees. These come in two varieties:
- Exchange fees. These are essentially service fees and they are how the exchange makes money:
- Trading fees, also called maker/trader fees, are charged when engaging in a transaction.
- Deposit fees are charged when adding money to your account.
- Withdrawal fees are charged when you take money out of your account, be it as regular currency or crypto.
- Account fees are charged on an ongoing basis in order to keep the account open, usually monthly.
- Network fees. These get paid to crypto miners. Many centralized exchanges incur this cost, but also allow users to pay more in order to speed up transactions. On decentralized exchanges, users are the ones to shoulder this cost.
You need to be sure of what you value most before making a decision. Do you value your privacy the most? Are you willing to give up some personal information in exchange for convenience? Is security your main concern? Are you willing to take a look at a new platform in an effort to get the best of both worlds? Another thing to consider is whether or not the exchange in question even supports your coin of preference.
The world of cryptocurrency is new to a lot of people and it can feel intimidating sometimes. Fortunately, there are plenty of resources available to help you better inform yourself and make sure you are getting the best experience possible. Hopefully, this post has helped give you the right starting point to be able to do just that.
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