In the early stages of cryptocurrency development, there were only two basic ways to acquire coins, such as Bitcoins. You could either mine the coins or buy them from someone willing to sell them. However, the development of exchanges and institutional adoption has made it easy and efficient to access cryptocurrencies.
The following article will in-depth examine how crypto exchanges work.
What Is a Cryptocurrency Exchange?
An exchange is a system or marketplace where buyers and sellers exchange their shares, currency, and other valuable items. Similarly, it is a platform where you can easily trade cryptocurrency coins. You can either exchange the crypto coin for another coin or fiat money.
The crypto exchange is done through a live order book, which helps to display different buy and sell orders, directly impacting the exchange rate of various coins. Crypto exchanges tend to calculate the prices of a cryptocurrency based on the trading volume. Therefore, in most cases, an exchange with more users provides higher market-relevant prices. This is why there are slight differences in cryptocurrency prices among various exchanges.
There are three major crypto exchanges- decentralized, centralized, and hybrid. In addition, there are other ways to buy and sell your cryptos, such as investing apps and peer-to-peer platforms. One of the most reliable crypto exchanges is TruBit Crypto exchange which allows you to trade your cryptocurrencies efficiently.
How Does Cryptocurrency Exchange Work?
Once you acquire an account with a crypto exchange, it allows you to trade all types of cryptocurrencies, such as Bitcoins, Litecoin, Ether, or Dogecoin. Depending on the exchange, you can purchase these coins using fiat money, such as the US dollar, or exchange using one form of crypto for another. A more significant and stable exchange provides a higher range of cryptocurrencies, hence an excellent factor to consider when setting up an account.
Additionally, you should check if your desired cryptocurrency is available in that exchange.
With cryptocurrency exchange, you can easily convert crypto into regular money and leave it in your wallet for future use or withdraw it. However, it’s good to note that services in every crypto exchange can vary depending on the type of exchange or app you use.
How to Trade on a Crypto Exchange?
To begin trading, you must deposit money in your exchange account, also known as a wallet in some cases. Note that a wallet provided by an exchange or app is only held in that exchange. To enhance your crypto security, setting up your crypto wallet is essential.
With your exchange account, you can easily view the trading prices of various crypto exchanges. It’s worth noting that the exchange does not set the prices for multiple cryptocurrencies; the market primarily determines them. Since cryptocurrencies are highly decentralized, you may note slight differences in crypto prices in various exchanges.
You are supposed to place a buy order to purchase cryptocurrency. The order is then added to the order book, where other buy and sell orders exist. Depending on the exchange you choose, the view of online brokers and exchange rates may charge you some fees for such services.
What are the Different Crypto Exchanges?
1. Centralized Exchanges
Centralized exchanges have a third party who helps manage all transactions and ensure they go as intended. This may sound counterintuitive, considering one of the basic principles and advantages of cryptocurrencies is that they are highly decentralized, meaning they are not subject to regulation by the government or other authorities. However, a centralized cryptocurrency exchange enables you to buy the desired crypto using regular currency efficiently.
2. Decentralized Exchanges
Unlike centralized exchanges, decentralized cryptocurrency exchanges operate without a third party. Therefore, decentralized exchanges are closer to meeting cryptocurrency thresholds since they are open source and entirely depend on peer-to-peer trading.
Moreover, decentralized cryptocurrencies are highly secure compared to centralized exchanges since there are no third parties, central servers, or entities to be hacked, making it harder to steal any cryptocurrency. Additionally, they are cost-effective and faster since transactions go through a shorter and quick process.
Nevertheless, a few flaws come with decentralized cryptocurrency exchanges, such as being equipped and skilled in technology since making transfers from your bank accounts may not be easy. In addition, some may not offer fiat currency exchange giving you only an option to trade with your crypto coins. Also, no contact person will help you if you have an issue since there is no centralized authority.
3. Hybrid Cryptocurrency Exchanges
Hybrid cryptocurrency exchange tries to blend the best features of centralized and decentralized to create one exchange. The main aim of a hybrid cryptocurrency exchange is to provide you with the efficiency of a centralized exchange while simultaneously allowing you to enjoy the freedom and security of a decentralized exchange. However, it has yet to be widely adopted compared to exchanges such as the centralized. Still, the foundation and the advancement being created may boost its adoption, allowing most users and crypto enthusiasts to enjoy the services in the future.
Wrapping Up
A crypto exchange is a simple platform that helps you buy and sell all types of crypto. Nevertheless, just like most things in cryptocurrency, it may look complicated or complex, especially for beginners. However, you can consult people with experience or experts in cryptocurrency to understand how cryptocurrency exchanges work. You must have enough knowledge of the platforms, wallets, blockchains, and exchanges you are planning to use. This is to ensure you use only the best and most efficient one.