25 days ago

What Is a Crypto Exchange

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The cryptocurrency market is developing in a spiral, where falling is replaced by growth and vice versa. There are different scenarios for the development of the cryptocurrency market, but one thing is for sure: no one can say with 100% certainty whether it will go up or down. This is simply impossible, there are factors based on which you can only form an idea of what will happen in the future.

 

For example, the first months of 2024 proved to be successful for the digital asset industry. In particular, Bitcoin generated almost 65% growth, which made it one of the best quarters in recent years. But do you remember what happened to Bitcoin a couple of years ago? In the summer of 2022, the Bitcoin exchange rate suddenly collapsed, and no one understood why this happened.

 

In 2024, more and more people are using cryptocurrencies to make payments and invest. As more people take advantage of these benefits, many companies are emerging with new methods and tools to facilitate and simplify transactions, as well as to create a new digital currency. Thus, many are wondering what a cryptocurrency exchange is and how to work with this platform the right way.

 

Crypto Exchange Basics

 

A crypto exchange is a place where crypto market members meet: traders, investors, institutional players, and developers. Thus, it has become a key link in the ecosystem of digital assets. 

 

What is a crypto exchange platform? The crypto bourses provide the necessary infrastructure for trading and offer users a variety of tools for buying, selling, and exchanging digital assets. In addition, on some cryptocurrency exchanges, one can trade derivatives of cryptocurrencies — futures, options, and tokens with leverage.

 

Initially, crypto bourses were created to simplify the process of exchanging tokens between users. With the development of the market, bourses have turned from simple exchangers into full-fledged trading platforms with tools for professional trading and investing.

 

One of the main features of crypto bourse is the ability to trade without intermediaries.

 

Crypto Exchange Types

 

All cryptocurrency bourses, depending on their characteristics, can be divided into five types: 

 

  • Centralized (CEX)

 

It is a cryptocurrency exchange that functions similarly to forex and stock platforms. You send your funds to the exchange and trade on it. 

 

CEX is managed by a single organization. They may offer customer support and a more user-friendly interface, but they are vulnerable to attacks, charge users higher transaction fees and are opaque about their ability to pay. This leads to the last and most important drawback — they require users to relinquish control over their funds. 

 

  • Decentralized (DEX)

 

DEX is a crypto exchange where you connect your wallet to trade on the platform. It operates without restrictions using smart contracts on the blockchain. These exchanges do not support other functions such as betting or copywriting. Most of them have relatively small volume and low liquidity compared to centralized exchanges, and in addition, they have higher fees. DEX offers offline storage, data protection and privacy, as well as a lower barrier to entry (no need to register or open an account).

 

  • Over-the-counter platforms

 

It refers to the direct trading of crypto assets between two parties without the participation of a central party. Over-the-counter trading takes place outside the exchange. Mainly, it is carried out through over-the-counter trading points. 

 

And, here is an alternative option — Peer-to-peer (P2P). Simply put, over-the-counter exchanges involve direct transactions between parties without a platform acting as an intermediary, while P2P ones use the platform to coordinate orders, but do not control the trading process itself.

 

  • Derivatives exchanges 

 

These are platforms where traders can derivative financial instruments such as futures, options, and swaps. Here, traders can speculate on the future value of the underlying asset, hedge potential risks, or fix the future price.

 

  • CFD brokers

 

CFD brokers provide traders access to the global Forex market through applying contracts for difference (CFDs). Thus, traders can speculate on price fluctuations for various currency pairs without owning the underlying asset.

 

Pros and Cons of Cryptocurrency Exchanges 

 

Positive

 

  1. It is easy and hassle-free for users to buy digital coins.
  2. Exchanges allow legitimate cryptocurrency trading.
  3. Many platforms offer their users tax forms that simplify the calculation of taxes on virtual currency.

 

Negative

 

  1. They are too vulnerable to hackers and cyber-attacks.
  2. If the bourses go bankrupt, users can not access their funds or make transactions.
  3. On most crypto bourses, users do not have the right to store their private keys.

 

How It Works

What Is a Crypto Exchange

 

A crypto bourse is a product consisting of computer hardware and software. How does crypto exchange work?

 

The user registers in the program by creating an account. The trader replenishes his digital and fiat accounts, withdraws money, and places purchase and sale orders in the account. Many bourses provide extra options — chat, news feed, currency rate analysis, etc.

 

The hardware is represented by servers on which operations are performed and data about users, their accounts, and transactions is stored. Registration on the exchanges is free and is not difficult for an experienced Internet user. Each bourse has its list of options for replenishing the balance with regular money and withdrawing funds. 

 

The trading process is simple — the user applies for a certain amount and specifies the currency rate to buy or sell. Once there is a user who agrees to a deal, it is concluded.

 
Crypto wallet and crypto exchange: the main differences

 

The main difference between a digital wallet and a bourse is that exchanges only provide you with trading options; they do not provide the necessary storage.

 

How do crypto trading platforms work? On the bourse, you can perform:  

 

  • Cryptocurrency trading; 
  • Convert digital funds to fiat and vice versa; 
  • Send virtual tokens to a wallet.

 

With the crypto wallet, you can: 

 

  • Keep your cryptocurrency safe; 
  • Have access to digital currency at any time; 
  • Protect your assets.

 

How to Choose a Crypto Exchange 

 

Here are crucial tips on how to choose a crypto exchange that can significantly save you time:

 

  • Check whether the bourse is registered with the relevant authorities. A reliable platform always has a valid license.
  • The level of reliability. The decent platform has a domain name age of more than 6-12 months and an SSL certificate, and it is also present in top cryptocurrency catalogs.
  • A trustworthy platform always has a legitimate presence on social media (LinkedIn, Twitter, or Facebook).
  • To learn how to choose the best crypto exchange, always check the customer support service of the platform before choosing a bourse. Read the clients' reviews online.
  • A list of trading pairs and coins. Check if the digital currency you need is on the lists of a particular platform. The same applies to the range of trading instruments — not all exchanges offer the same functions.
  • The withdrawal procedure. When exchanging cryptocurrencies for fiat money and withdrawing funds from an account, additional verification may be required. Besides, crypto bourses set limits on withdrawals. It is worth knowing in advance the exact information about these things.

 

Keep in mind, the crypto market is actively growing. Today, it is a popular, albeit risky, way for investing and trading, which may bring high income. Crucial advice for a novice is — to choose the exchange, you need to understand what crypto platforms are, your goals and pay attention to the set of services that a particular platform offers.

 

The Wiex.io platform offers a secure and trouble-free solution for buying, selling and exchanging cryptocurrencies. All user assets are fully protected, which ensures the security of all transactions on the platform.

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