Important Information About Cryptocurrency Exchanges
Cryptocurrency exchange platforms are a great way to start trading cryptocurrency.
The number of cryptocurrencies available is increasing and most cryptocurrency exchanges are now able to offer a wide range of coins, tokens or altcoins. These digital assets are also available for trading in other cryptocurrencies like Bitcoin and Ethereum.
However, with so many exchanges available, it can be daunting trying to figure out which ones best suit your needs.
How centralized crypto exchanges work
It is very easy to purchase your cryptocurrency once your money has been deposited on a CeX. The CeX usually comes with a built-in crypto wallet that you can use to store your cryptocurrencies. You can also withdraw your crypto assets to another wallet.
Every centralized exchange features a different internal architecture; however, most centralized exchanges operate with order books that match buy and sell orders.
A CeX's order book lists all orders (buy and sell) from users looking to trade cryptocurrencies on that particular exchange with prices ranging from the best offers, best bid, high, low, etc.
Once an order is matched by a counter-party (i.e., a buyer or seller), the order will be taken by the platform operators, who match the orders and provide liquidity, thus enabling an efficient and fast trade execution at the best price.
How Decentralized Crypto Exchanges Work
Although decentralized exchanges can be very easy to use, there are some learning curves. These types of exchanges allow you to buy cryptocurrencies from other users with nothing but the blockchain as the intermediary.
People who wish to exchange cryptocurrency without the need to use a third party or trust a central entity for safety and security are well-suited to DeXs.
There are two types of decentralized changes: automated market-making DeXs and order-book-based Decentralized Exchanges.
Order-book-based decentralized exchanges operate in the same way as centralized exchanges in that they list all of their orders on an order book with prices ranging from best asking prices to the best bids. The difference is that they deploy a decentralized framework to match and settle transactions. Order books are not used by automated market-making DeXs. They use smart contracts to match and settle orders between a user's wallet and a smart contract. AMM DeXs also outsource liquidity from platform users.
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