Mar 08, 2023
Read 5 min.
If you are interested in taking advantage of the opportunities offered by the cryptocurrency space, you may be wondering where to start. If you are going to develop in crypto trading, it is important to understand the basics of one of the most significant things — cryptocurrency exchanges. Now we’re going to look at some important questions you should know before you get started. How do cryptocurrency exchanges work? What is the difference between centralized and decentralized crypto exchanges? Today you will get answers to these and many other questions. If you want to know more about how crypto exchanges work, be sure to finish this material.
A cryptocurrency exchange is a platform where you can buy and sell digital assets and make transactions with them. You can trade some cryptocurrencies for others, or buy them in exchange for fiat. For instance, you can convert Bitcoin into other coins or withdraw digital assets from a crypto wallet into fiat.
The cryptocurrency exchange also displays the current prices of different crypto. Also, cryptocurrency exchanges offer other services like staking, where you freeze a certain amount of digital assets in your wallet to keep the network running. You can also use fiat to buy coins. Let’s understand how cryptocurrency exchanges work. For starting to buy and sell digital assets, the user registers on a crypto exchange and creates an order for cryptocurrency, specifying the worth. When another user of the cryptocurrency exchange encounters someone who wants that particular coin, they make a transaction. The cryptocurrency exchange receives a percentage of each such transaction. It is very simple and now you know how crypto exchange works.
The bankruptcy of a major centralized FTX exchange has caused a wave of distrust in these platforms. However, since the advent of Bitcoin, all trading in crypto has been conducted exclusively through centralized crypto exchanges (CEX).
The demand for DEX grew in 2017 when the ICO fever led to the appearance of thousands of new tokens and smart contracts. Most of these tokens were traded on DEX, as the centralized platforms required a complex selection process. So, let’s take a quick look at CEX/DEX type of exchanges:
For instance, the centralized exchanges Binance, Coinbase, and KuCoin took an algorithm that had worked for many years with fiat before crypto and applied it to a new market. Among the DEXs are Uniswap, dYdX, and Kine Protocol. On the ApolloX crypto exchange, you can trade decentralized Bitcoin futures.
So, choosing a crypto exchange is the priority for novice traders. Of course, it is important to know about exchange work, but you also need to be able to select the best option. You can find ratings of platforms by their level of reliability, speed, and fees for transactions. Let’s highlight the points you should pay attention to when selecting a crypto exchange:
As for transaction fees, there is a simple rule: the easier it is to buy/sell digital assets on the exchange, the more you have to pay. You must also decide which crypto wallet to use. We touched on this topic because you can choose a cryptocurrency exchange wallet. Many platforms offer a wallet, such as Coinbase. You can keep the keys to your assets online or on a cold wallet, which is a special USB drive. Many experts warn against exchanges that only allow you to keep Bitcoin or other coins on their platform. Although this option is suitable for beginners who are just learning and don’t keep all cryptocurrency in one place.
Different types of fees are charged depending on the services provided by the platform. It is often possible to view the fee structure of a particular exchange. For example, buying and selling a coin is subject to a fee that can range from 0% and 1.5% or more of the deal.
To verify that the platform is legitimate, look for a history of refunding users in the event of hacking. You should also check if it is registered as a money service business. Be sure to look for standard security rules (e.g. a withdrawal warning). Also, pay attention to whether the address is clearly stated.
Mar 15, 2023
What is DeFi
What is decentralized finance and why do we need the DeFi ecosystem? DeFi’s key features and benefits, disadvantages, and risks. How is DeFi challenging the traditional banking industry?
Mar 10, 2023
What is Arbitrum and how it works with the Ethereum blockchain? Arbitrum ecosystem and tokens. How you can get crypto with Arbitrum Airdrop and AlphaQuest?
Mar 17, 2023
How much does crypto get taxed
Your guide to cryptocurrency taxes. Explaining Bitcoin and other crypto taxes. Do you have to pay taxes on digital assets? How much tax do you have to pay on the capital gains of cryptocurrencies?