In the world of cryptocurrency trading, a digital currency exchange, also known as the cryptocurrency exchange is a platform that enables traders and investors all around the globe to trade cryptocurrencies for other digital currencies or assets. GDAX, Coinbase, AirSwap being the best cryptocurrency exchanges in the market at present, these platforms solely work as an intermediary in a buying/selling scenario in which they earn commission out of transactions. These exchanges can trade money for cryptocurrencies such as Bitcoin of similar value and the other way around. With two major types of cryptocurrency exchanges available in the market including centralized and decentralized, we can notice a set of pros and cons in both of them.
Centralized vs. Decentralized crypto exchanges
Centralized exchanges are more common among traders and mostly responsible for executing trades from crypto to fiat and vice versa as well as between two distinct cryptocurrencies. In centralized exchanges, traders mostly encounter a middle man to perform trades and to conduct the transactions. Here both buyers and sellers have a sense of mutual trust in the third party or bank for trouble-free asset management. This bank assures safety and constant monitoring of the assets which individuals struggle to perform on their own in most cases. Centralized exchanges also eliminate the risk of losing the key to digital wallets where the currency holdings are mainly stored by keeping the key to themselves rather than with the investor.
Decentralized exchanges on the other hand eliminate the middleman completely which often creates a sense of unreliable trading atmosphere among many traders. Here instead of relying on an escrow service, the functions depend on peer-to-peer exchanges where transactions are done based on atomic swaps and smart contracts. The primary difference between these two exchanges is the presence of a mediator which differentiates the whole process.
Understanding the significance of crypto exchanges
The main aspect of crypto trading for which most of the traders are inclined towards this industry is liquidity. Liquidity refers to the efficiency of conducting a hassle-free buying/selling environment of different financial assets. A trader or investor always looks for ways to convert their assets into cash or other digital currency and the crypt market is the most profitable and appealing industry for offering the highest returns. A crypto exchange highlights liquidity across mainly three levels including- Exchange liquidity, Asset liquidity and Market liquidity.
When it comes to liquidity, the relation between the exchanges and the banks play a crucial role. With benefits like high security, more transparency, lower fees on transactions and more, the significance of these exchanges are enormous in the crypto market. Investors around the world are realising the value of the liquidity factor which is instigating them to incline towards cryptocurrency trading more and more.
Factors to consider while choosing the best cryptocurrency exchange
Lower trading fees
Before opting for the best crypto exchange platform you need to look for the best deals and features that that particular platform has to offer. And the foremost factor to consider here is the trading fee that comes with each crypto trade. Make sure the exchange you are settling on has 0% deposit fees so that it can be a bit more favourable to you in terms of trading. Apart from that, look for the facility of fiat exchange that enables traders and investors alike to trade popular currencies to cryptocurrency and vice versa.
In the crypto trading market, security is definitely the most essential factor to consider and that is the reason as an investor you check for security features like Captcha facility, the requirement of a strong password, 2FA and anti-phishing codes are available in the crypto exchange you have to opt for. Although due to the blockchain technology, crypto exchanges naturally provide better security it is advisable to look for procedures like identification processes such as KYC verification in an exchange.
Being a dynamic and evolving asset exchange market, crypto trading is becoming a more critical and exciting industry all over the globe. With many perks to offer, understanding the value of crypto exchanges is the first take you can take to make a successful trading career.
Founder Dinis Guarda
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