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As a way to start buying and selling cryptocurrencies and other digital assets, the most common approach is to transact with Crypto Exchanges. Cryptocurrency exchanges are privately-owned platforms that facilitate the trading of cryptocurrencies for other crypto assets, including digital and fiat currencies and NFTs.

Key Highlights

The commonest way of transacting in cryptocurrencies and other digital assets is via a Cryptocurrency Exchange.

You can find Centralized and Decentralized Cryptocurrency Exchanges, each offers benefits and drawbacks.

Centralized Cryptocurrency Exchanges (“CEX”)

Centralized cryptocurrency exchanges become a middle man from a buyer and a seller and make money through commissions and transaction fees. Imagine a CEX to become similar to a currency markets however for digital assets.

Comparable to trading websites or apps, these exchanges allow cryptocurrency investors to acquire and then sell digital assets in the prevailing price, called spot, as well as to leave orders which will get executed in the event the asset grows to the investor’s desired price target, called limit orders.

CEXs operate using an order book system, meaning that purchase and sell orders are listed and sorted through the intended buy or sell price. The matching engine in the exchange then matches clients depending on the best executable price in the desired lot size. Hence, searching for asset’s price is determined by the provision and demand of that asset versus another, whether it be fiat currency or cryptocurrency.

CEXs pick which digital asset it’s going to allow exchanging, which provides a tiny measure of comfort that unscrupulous digital assets could be excluded from your CEX.

Decentralized Cryptocurrency Exchanges (“DEX”)

A decentralized exchange is the one other type of exchange which allows peer-to-peer transactions straight from your digital wallet without going through an intermediary.

These decentralized exchanges depend upon smart contracts, self-executing items of code on the blockchain. These smart contracts permit more privacy and less slippage (another term for transaction costs) compared to a centralized cryptocurrency exchange.

On the other hand, even though smart contracts are rules-based, the possible lack of an intermediary vacation ensures that an individual stays to their own, so DEXs are meant for sophisticated investors.

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