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As a way to haggle for and selling cryptocurrencies and also other digital assets, the commonest way 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 most common method of transacting in cryptocurrencies and also other digital assets is via a Cryptocurrency Exchange.

You will find Centralized and Decentralized Cryptocurrency Exchanges, each offers pros and cons.

Centralized Cryptocurrency Exchanges (“CEX”)

Centralized cryptocurrency exchanges become a middle man between a buyer as well as a seller and make money through commissions and transaction fees. You can think of a CEX being much like a stock exchange however for digital assets.

Just like stock investing websites or apps, these exchanges allow cryptocurrency investors to purchase then sell digital assets on the prevailing price, called spot, or leave orders which get executed once the asset reaches the investor’s desired price target, called limit orders.

CEXs operate employing an order book system, which means that exchange orders are listed and sorted through the intended purchase or sell price. The matching engine of the exchange then matches sellers and buyers depending on the best executable price given the desired lot size. Hence, an electronic asset’s price will depend on the provision and need for that asset versus another, whether it is fiat currency or cryptocurrency.

CEXs choose which digital asset it’s going to allow exchanging, which offers a little way of comfort that unscrupulous digital assets might be excluded from your CEX.

Decentralized Cryptocurrency Exchanges (“DEX”)

A decentralized exchange is yet another type of exchange that allows peer-to-peer transactions from your digital wallet without dealing with a middleman.

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

Conversely, though smart contracts are rules-based, the lack of an intermediary alternative party means that the consumer is left to their own, so DEXs aim at sophisticated investors.

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