There are basically two types of crypto exchanges: central exchanges and distributed exchanges. Each type has its advantages and disadvantages.
One organization manages centralized crypto exchanges (CEX). It is easy to start cryptocurrency trading with centralized exchanges. Users can convert their fiat currency (like dollars) directly into crypto. Most crypto trading takes place on centralized platforms.
Some crypto enthusiasts are against centralized exchanges as they do not support the decentralized nature of cryptocurrency. Some users may find it even more annoying that the company or organization requires users to adhere to Know Your Customers (KYC), rules. To combat money laundering or fraud, each user must disclose their identity just like when they apply for a bank card.
Hacking is another issue with central exchanges. A CEX is an exchange that holds crypto trades on its platform, at least for the short-term. However, trades are processed, increasing the risk of hackers stealing assets.
Over the years, centralized cryptocurrency exchanges have increased their security to address this risk. They also store customer assets offline and have insurance policies that cover crypto losses in case of hacking.
You can transfer crypto to a separate cold or hot wallet if you prefer the convenience of a central exchange.
The responsibility of facilitating and verifying crypto trades is shared by decentralized crypto exchanges (DEX). Anyone can join a DEX network and certify transactions. This is similar to how cryptocurrency blockchains operate. This can increase transparency and accountability, as well as ensure that an exchange can continue to operate regardless of its state.
Decentralized exchanges can be difficult to use, both from an interface perspective and in terms of currency conversion. For example, decentralized exchanges don’t allow users to exchange dollars for crypto. To get crypto you must either already have it or use a central exchange.
It’s possible that you will also engage in peer-to-peer trading. It may take you longer to find someone to buy what your selling, and liquidity may mean that you might have to make concessions on the price in order to sell or buy a low-volume cryptocurrency quickly.
Global Crypto Exchanges
Nearly 600 cryptocurrency exchanges offer investors the opportunity to trade bitcoin, Ethereum and other digital assets. However, safety and quality are not all equal. Forbes Digital Assets placed a strong emphasis on regulatory compliance and ranked the 60 top cryptocurrency exchanges worldwide.