Crypto Glossary

Posted on September 13, 2021 in
Glossary

Exchange

Cryptocurrency exchange refers to any mechanism that trades digital cash for other assets. To facilitate the buying and selling of these digital assets, as well as others, a cryptocurrency exchange operates similarly to a regular financial market.

What is a cryptocurrency exchange

Cryptocurrency exchange refers to any mechanism that trades digital cash for other assets. To facilitate the buying and selling of these digital assets, as well as others, a cryptocurrency exchange operates similarly to a regular financial market.

Cryptocurrencies may be instantly traded at exchanges. As with conventional currencies, they may be bought and sold or exchanged for another digital asset. Most of these exchanges are open 24 hours a day, 7 days a week. Anonymity is one of the benefits of these platforms. Thanks to current technical solutions, all transactions are reliably safeguarded.

Centralised vs Decentralised Cryptocurrency Exchanges 

With such growing popularity, cryptocurrency exchanges are becoming one of the most talked-about topics in the market today. 

Centralised Exchange:

A centralized exchange works in similar ways to modern banking institutions. They are reliable and safe; moreover, these exchanges follow strict enforced rules and regulations for optimal results. However, all your cryptocurrencies and digital assets will be stored by a third-party service provider. Therefore, some risks should be taken into consideration.

In a centralized cryptocurrency exchange system, there are chances where it can be hacked quite easily, leading to traders losing all of their digital assets and funds within a very short period. An entire centralized cryptocurrency exchange can also disappear into thin air overnight. 

Decentralised Exchange:

Now that we understand the benefits and risks of a centralized cryptocurrency exchange system, let’s see how its counterpart, the decentralized exchange can help traders mitigate the aforementioned risks and provide them with a new level of peace of mind.

In recent years, the decentralized nature of cryptocurrency exchanges has become the unique selling point that drew a ton of attention from the general public. Here are a few reasons why:

  • No deposits or withdrawals are required to use the service. All peer-to-peer transactions are managed by smart contracts that may be programmed. 
  • There is no one (single) point of control, regulation, or failure that is responsible for potential problems.
  • Due to the lack of registration requirements or KYC processes, there is an increase in privacy. 

In a decentralized cryptocurrency exchange, you will be the true owner of all your assets. However, you will need to have a lot of responsibility to keep your digital assets safe.

Choosing the right exchange

How you define and measure success in your cryptocurrency endeavor is the thing that you will need to evaluate. Your goals will help you pick the right kind of exchange. A centralized exchange will require you to trust the third-party provider whereas a decentralized exchange will require you to trust yourself.

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