Exchanges

Cryptocurrency exchanges are digital marketplaces where users can buy and sell crypto and various digital assets, such as non-fungible tokens (NFTs).

Before crypto exchanges came to be, the only way to obtain crypto was via mining or transactions organized online. Unlike stock exchanges, they’re strictly digital and accessible via mobile apps or desktop software.

These exchanges aren’t regulated by the U.S. Securities and Exchange Commission (SEC), but they must comply with the Bank Secrecy Act, which requires registration, reporting, and the collection of customer data.

Trading via crypto exchanges is rather simple, as all users have to do is:

1. Find a trustworthy crypto exchange and create an account
2. Fund account or crypto wallet with their preferred digital currency
3. Select the type and amount of cryptocurrency they want to buy
4. Follow the steps provided by the exchange and check their account to make sure the transaction was successful

There are three main types of cryptocurrency exchanges, including:

• Centralized exchanges (CEX). These exchanges are regulated by a single authority that makes sure every transaction goes smoothly. They work like a conventional equity stock exchange and usually handle transactions faster.
• Decentralized exchanges (DEX). Contrary to centralized exchanges, decentralized exchanges run on the basis of distributed ledger infrastructure and allow crypto trading without the presence of any authority. They are fully autonomous and give users full control over their keys and digital assets.
• Hybrid exchanges (HEX). As a mix of CEX and DEX, hybrid exchanges combine the best of both worlds. They offer the convenience and swiftness of centralized exchanges but also the privacy and security of decentralized exchanges.

Cryptocurrency exchanges charge for various transactions, such as:

• Selling, buying, and loaning crypto
• Withdrawing and liquidating assets
• Depositing crypto to online storage spaces (e.g., digital wallets)

Typically, crypto exchanges take between 0% and 1.5% per trade, depending on whether a user is selling or buying. This means that if they want to invest $1,000 in a certain coin/token, they’ll have to pay a fee that can average anywhere between $0 and $15.

To rank crypto exchanges, CryptoMarketCap takes into account factors such as trading volume, number of coins, market pairs, supported fiat currencies, etc. Based on these criteria, CMC gives each crypto exchange an impact score from 0 to 10.

The impact score is used to rank exchanges accordingly, so website visitors have a quick metric by which they can judge a certain exchange and decide whether it’s the right choice for them.

Crypto exchanges come with various benefits, such as:

• Ease of use. Instead of using crypto wallets and opting for peer-to-peer transactions, users can take advantage of centralized exchanges that offer a simple way of trading. To trade on CEXs, they can simply log into their account, check their balances, and make transactions by following the given prompts.
• Reliability. Using crypto exchanges will provide users with an additional layer of security and reliability. This is especially true if they decide to use CEXs, as all transactions on these are made on a centralized platform with a governing authority.
• Leverage. Some CEXs can lend users money so they can leverage their investments. This is called margin trading, and it allows them to reap higher returns. However, there’s still a risk of their losses getting amplified.
• Custody. Decentralized exchanges do not transfer their assets to a third party when making a transaction. This means that the risk of users’ chosen DEXs getting hacked is greatly reduced and that they can trade worry-free.
• Less censorship. DEXs don’t require users to fill out KYC forms, as they offer full anonymity, and they don’t exercise censorship.

When deciding on the right crypto exchange, you should:

• Be careful. As scams, frauds, and crypto hacks happen all the time, it’s always recommended to be on guard when choosing a crypto exchange. This means checking whether the exchange has a physical address associated with it because it’s a sign of transparency, which itself is a sign of legitimacy.
• Do your research. Before creating an account on a crypto exchange, take your time to check whether the exchange you’ve chosen is reputable. See what others have to say about it, check whether there were any security issues with it in the past, read reviews, etc.
• Check the security features. The more security features a crypto exchange has, the better. Look for exchanges that make it hard to create an account, as most exchanges with an easy account-creation process are generally not trustworthy. Still, no matter how secure an exchange might be, keeping your digital funds in an offline wallet is always recommended.
• Consider the pairs and fees. The fees and the currency pair a crypto exchange offers are the two crucial factors that distinguish exchanges. These also determine how much money you’ll have to pay for each transaction. Think about whether you’ll actively be making transactions, how much fee an exchange takes, etc., as this will save you a lot of money in the long run.
• Look for multiple withdrawal and deposit options. Although this isn’t a must, it’s certainly something that will make your trading easier and more convenient. Therefore, look for exchanges that accept bank transfers, credit and debit card payments, etc.