Crypto Exchanges Everywhere, Which Ones To Choose?
Crypto exchanges have been popping up everywhere since blockchain technology boomed and the arrival of Bitcoin (BTC). Bitcoin was only available to a limited few because initially, only Bitcoin miners could get Bitcoin (BTC). Back then, one needed to join the Bitcoin ecosystem to try and get some of this precious limited asset. Since not many knew what Bitcoin was back then, it wasn't a big deal. But once the value of BTC started to go up, more and more eyes came to recognize its potential.
Eventually, other cryptocurrencies began to show up. Once Ethereum made its debut, it was soon followed by a whole walkway of valuable cryptocurrencies. Then, as the promise of crypto trading and investing seemed to solidify, it was time for crypto exchanges to arrive. Much like the stock exchange, where brokers, buyers, sellers, and investors meet to bid, buy, or sell to earn a profit, crypto exchanges are pretty much the same; except instead of stocks, it was all crypto!
A huge reason behind the popularity of crypto trading is due to its easy accessibility. Traditional means to gain financial independence often came with the need to own a bank account. With a large population of the world being unbanked, making financial investments was a challenge to many. However, with crypto exchanges, things got a lot easier. Presently, there are two types of crypto exchanges, Centralized Exchanges (CEX) and Decentralized Exchanges (DEX). Both options come with pros and cons which we will explore now.
Centralized Exchanges (CEX)
The biggest advantage to a centralized exchange is that it is built to be user friendly to welcome users who are just getting started on trading crypto and have no idea how to use crypto wallets. A CEX will keep custody of your crypto wallet by not disclosing your private key to you. New users often tend to neglect the importance of remembering these phrases and fail to safeguard this information.
While it does simplify and speed up the crypto trading process, it also means you will never truly have full custody of your assets. In an event where a CEX undergoes a hack or faces technical issues, you may be locked away from your funds. Another aspect of using a CEX is that users will have to disclose their real world identities. Every CEX user has to verify their account with ID proof. This will give the CEX assurance. So all transactions made on a CEX will forever be linked to you.
Due to their ease of use, CEXs are often the popular choice for the vast majority, as many are still getting acquainted with the crypto industry. This often means that more users are coming in with their assets and adding to the liquidity on the CEX. CEXs have a much larger volume when it comes to the assets available on its platform, which means traders can trade at market prices. CEXs also offer advanced trading features such as margin trading, futures trading, and other derivatives products.
It can be a challenge for projects to list their tokens on a CEX as it must meet a lot of requirements to qualify, especially if the exchange is highly respected. For instance, Binance, Coinbase, and Kraken are a few examples of popular centralized exchanges. Ultimately, CEXs are the more common type of crypto exchange. They are operated by a central authority or company, which acts as an intermediary between buyers and sellers. Lately, unfortunate cases such as the FTX fiasco have put CEXs in a bad light, making DEXs seem to be the better option in the eyes of many.
Decentralized Exchanges (DEX)
On the other hand, decentralized exchanges are most popular with seasoned crypto traders who prefer to be the sole owners of the private keys to their crypto wallets. This is one of the biggest advantages to using a DEX. To trade crypto on a DEX one simply needs to connect their personal crypto wallets to the DEX and proceed to make a trade. In just two steps, transactions are done. DEXs can be fast and simple to use as you do not need to waste time by creating an account on the platform. This also means transactions on DEXs are always anonymous.
As for cons, depending on the DEX you are on, you will be limited to using certain wallets. For instance, you may have a Coinbase, MetaMask, and Exodus Wallet, but the DEX you want to use may not be able to connect to all of these wallets. Therefore, you may have to create multiple wallets to connect to the variety of available DEXs. But why not simply use the DEX that allows you to connect to your existing wallet? Well, this could be another challenge of using DEXs over CEXs.
Unlike CEXs, DEXs' asset pool may not include a large variety of tokens. On DEXs, tokens don't get listed. Instead, traders themselves provide liquidity to the DEX by bringing their assets and setting trading pairs. For example, I may provide ADA for DOT on Uniswap, but you would like ADA for BTC. This pair won't be available unless another trader provides it. So unless you want to swap your BTC to DOT to get ADA, you'd rather use another DEX where your preferred option will be available. However, you may have to connect with a different wallet.
So, DEXs offer more anonymity and control over your assets, but it can be a little more challenging to find the right assets, liquidity, and trading pair for you to use them seamlessly. However, DEXs have been growing more popular over the years, especially with public skepticism over CEXs since the FTX incident. Perhpas soon DEXs will become the norm. As long as there are traders available to provide liquidity, there is a lot of potential for DEXs to thrive. The biggest drawback would be buying and selling at non-market prices. Presently, Uniswap, Pancake Swap, and Curve Finance are some of the most popular DEXs.
Depending on your comfort level in the crypto sector, you can choose either CEXs or DEXs to trade on. Perhaps you can use a combination of both. There are plenty of CEXs and DEXs for you to explore. Start with small funds and see what platforms work well for you. It is always a good idea to trade on multiple platforms as they could be offering special promotions and exclusive events for their users. You can do the same with your crypto wallets too. There are many to choose from. Explore to discover your favorites!
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