There are hundreds of cryptocurrencies emerging every single day. Thus, most of the traders are moving towards top cryptocurrency exchanges to perform trading. If you look at the average number of transactions happening in crypto trading platforms, it has accounted for 362,000 transactions per day during the first quarter of 2019.
These exchanges are the entry point for the traders who want to get into the field of cryptocurrencies. But, not all the crypto exchanges provide similar services to the users. Hence, it is crucial to know the major differences between the cryptocurrency trading platforms.
This blog will provide you the complete details about the three most popular exchanges in the crypto industry.
- Centralized Cryptocurrency Exchanges
Centralized Crypto Exchanges or CEX are the most prevalent & traditional exchange in existence. In these exchanges, both the buyers and sellers would perform the transactions. While a middleman would be responsible to mediate them. In return for this, they charge a piece of fee in the term of the trading fee.
This is similar to the transactions happening in the traditional Bank process. The major reason behind this setup is, they offer high-end security which an individual cannot accomplish on their own. The same gets applied to Centralized Exchanges.
These centralized crypto exchanges will facilitate both crypto-to-fiat trading as well as fiat-to-crypto trading instantly. This will allow the traders to trade with popular fiat currencies like USD, Euro, INR, etc to buy cryptocurrencies. Additionally, crypto-to-crypto can also be done here. This means that one can trade with cryptocurrency to buy yet another cryptocurrency.
With this factor, most of the traders, find centralized crypto exchanges more beneficial and comfortable for them. Therefore, most of the entrepreneurs started to build a cryptocurrency exchange for their users.
However, not all the exchanges were successful until the date. The main reason behind this is the trading volume. Higher levels of trading volume would generally lower the factor of volatility. As volatility plays a chief role in Exchanges.
While processing the transaction, the price may be in fluctuation and hence it may take a longer time. But with a higher trading volume & instant transaction time, the fluctuations will be comparatively low. Additionally, with a higher trading volume, liquidity will also be enhanced in Centralized cryptocurrency exchanges.
This is how centralized exchanges work:
- You provide money to the exchange platform.
- They hold the money for you.
- The Crypto trading platform displays the prices which you will watch instantly.
- Depending on the type of exchange, you can choose for fiat-to-crypto, crypto-to-fiat & fiat-to-fiat currencies.
- You place your order.
- The exchange figures out the best seller for you.
- That’s it, you have traded!
If you are a newbie, getting started with crypto trading will be worry-free if you go with Centralized Exchanges. In particular, you can opt for fiat-to-crypto trading which can be more comfortable for you! The most popular ones are Coinbase, Localbitcoins, Kraken, etc which renders them.
REAL-TIME CENTRALIZED EXCHANGES:
- Greater Liquidity
- Easy to use for beginners
- Faster Transactions
- High-Trading Volume
- Lack of anonymity
- Personal data requirements
- Hacking is possible
- The exchange has access to your funds
- Decentralized Cryptocurrency Exchanges
Decentralized or DEX Crypto trading platforms are the ones which don’t require intermediaries to perform the transactions. Instead of matching buy and sell orders in the order book, this exchange matches the people who perform those orders. Hence, for the absence of intermediaries, there is no trading fee involved.
DEX Exchanges are more private when compared to Centralized Exchanges which require personal information for the verification process. Decentralized Exchanges don’t require any disclosure of your identity to perform trading. While the security is also highly improved in Decentralized crypto trading platforms.
When speaking technically, DEX Exchanges are the ones that are created on a public blockchain. Thus, they remain immutable which means that data cannot be changed. In terms of governance, these exchanges are open to the public where anyone can participate in the trading process.
The technical architecture of decentralized exchanges includes a couple of modules:
- Asset Management and
- Order Matching
Asset Management is responsible for data & assets storage and trade settlement. While order matching is for saving the order book data and matching the orders. However, this system contrasts with CEX model in which user deposits their funds and exchange releases “IOU” that can be freely traded on the platform. When the user requests for the withdrawal of funds, they are again converted back to cryptocurrencies and sent to their owners.
REAL-TIME DECENTRALIZED EXCHANGES:
This is how decentralized exchanges work:
- You submit buy or sell requests to the relayer which hosts an order book.
- The interested party from the other end would sign it digitally to create a buy & sell counter order.
- Both these orders are sent to the smart contract of the Blockchain platform, which successfully executes the transaction and transfers virtual assets between the user wallets.
- Decentralized Exchanges offer higher security by preventing hacks.
- User has complete access to their funds.
- Since there is no central authority to mediate the transaction, there is no trading fee.
- No need for personal details while submitting.
- Not suitable for newbies.
- Slow transactions.
- If in case your account or computer gets hacked, there is no way to get your money back.
- Don’t have high liquidity & trading volume.
Know more: Decentralized Exchange
- Hybrid Crypto Exchanges
As the name suggests, Hybrid crypto exchanges are the combination of both centralized and decentralized crypto trading platforms. It takes advantage of both the exchanges by providing low latency with faster transaction speeds of centralized crypto platforms.
Similar to decentralized exchanges, it makes use of smart contracts to make sure there is no middleman involved to perform the transactions. This can reduce the security risks and puts the safety of the customer as the initial choice. Thus, most of the experts beleive that Hybrid exchanges can be the future of crypto trading.
The first Hybrid crypto exchange was Qurrex, which was launched in 2018. This exchange is built by implementing best practices of merging centralized and decentralized elements into it. This exchange solves the problems with both the exchanges by enhancing liquidity from the CEX platforms and confidentiality & security from the DEX platforms.
REAL-TIME HYBRID EXCHANGES:
- Next. exchange
This is how Hybrid exchanges work:
- Incoming orders are encrypted.
- The log of orders pool is recorded on the blockchain.
- Traders send their private key to the order pool, which decrypts it and sends it to the matching engine.
- Matched trades are recorded on the Blockchain network.
- Crypto balances are updated based on the history of matched trades.
- Private Investors.
- Affiliate crypto exchanges in search of liquidity.
- Reliability, scalability & modularity.
Since we are dealing with global technology in the world, they would have their own regulations and sovereigns involved by exchanges to facilitate transactions. Thus, these cryptocurrency exchanges play a greater role for the public in the crypto space. In fact, we could still expect most of the Entrepreneurs to launch a cryptocurrency exchange with the latest and futuristic technologies in the upcoming years!
In the comments below, let us know what type of exchange you prefer if you are a trader. Else, what type of exchanges you are planning to launch in the near future if you are a business person!
Hope this article helped you!