The constant rise of blockchain, cryptocurrencies, and crypto-based applications has motivated investors to register themselves on various crypto exchanges. These exchanges perform a crucial role in boosting the growth of the blockchain industry. They help investors to transact in cryptocurrencies instantly. While centralized exchanges remain the most popular choice, different types of cryptocurrency exchanges are currently doing rounds in the market.
Selecting a cryptocurrency exchange requires the traders to take into account several factors that can impact the user experience. Some of these factors include the security measures in place for the protection of exchange’s customers, the trading volume, the pairs that are traded, and the risk of trading on that platform. Although many cryptocurrency exchanges are available currently, most of them follow the standard protocol, thereby offering a limited trading experience to investors. Also, most of these crypto exchanges are based on ownership, trade, and acceptance. Let me run you through the various types of ownership-based exchanges out there, which will help you decide which one’s best for you.
Centralized exchanges account for the maximum number of transactions in the crypto ecosystem. It performs as an intermediary between two user-traders. They earn money by levying a charge on each sale, which varies from 0.1% to 1.5%. The broker company controls the entire platform, along with the system and infrastructure. Centralized exchanges display all the information related to the upcoming initial exchange offering listing. The exchange suspends all its operations in the event of a hacker or DDoS attack to secure user funds. Low transparency, high liquidity & volume, indirect fund ownership, non-anonymity, and risk of the counterparty are some of the fundamental characteristics of centralized exchanges. Coinbase, Bitfinex, Binance, and TradeSatoshi are some of the most prominent centralized exchanges.
Decentralized exchanges have no central authority and operate in a decentralized way. They allow the peer-to-peer trading of cryptocurrencies. They offer privacy as the investors are in complete control of their data and funds. However, it often compromises liquidity and efficiency. No cryptocurrency wallet and exchange that is listed on decentralized exchanges have a central ledger. Therefore, they don’t offer efficient latency. Although decentralized exchanges offer a smooth trading experience, they levy high charges as fees. However, it is possibly because they provide you with robust tools and quick confirmations on deals. High transparency, direct fund ownership, no counterparty risk, and anonymity are some of the major characteristics of decentralized exchanges. Next.exchange, dy/dx, and Ddex are amongst the most widely-used decentralized exchanges.
Hybrid exchanges are amongst the most sought out types of cryptocurrency exchanges. They have gained immense popularity lately and have earned the reputation of the next-generation crypto trading marketplace. As the word ‘hybrid’ suggests, it is an amalgamation of both centralized and decentralized crypto exchanges. Thus, it has the features and strengths of both platforms. While it borrows the functionality and liquidity of centralized exchanges, it also offers the security and confidentiality features of the decentralized platforms. Hybrid cryptocurrency exchanges, therefore, allow you to trade with and without an intermediary. They unite the advantages of both centralized and decentralized exchanges such as cooperation with large investors, reliable storage, and absence of higher authority. Therefore, hybrid crypto platforms have gained rapid popularity and more traction that both centralized and decentralized exchanges.
Ownership-based exchanges have different ways of building their network, implementing security measures, and regulating users. So, it is essential to balance all the considerations. With so many different types of cryptocurrency exchanges, it can be challenging to select the platform that is best suited to your needs. However, the unique business needs of an investor can help them make the right call. While one might feel comfortable with a centralized exchange that deals with al technicalities, others might be more inclined toward having the privacy of their data and funds respected at all times in a decentralized exchange.