Important Information Regarding Cryptocurrency Exchanges
So that you can start buying and selling cryptocurrencies as well as other digital assets, the most common method 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 way of transacting in cryptocurrencies as well as other digital assets is by a Cryptocurrency Exchange.
There are Centralized and Decentralized Cryptocurrency Exchanges, and every offers advantages and drawbacks.
Centralized Cryptocurrency Exchanges (“CEX”)
Centralized cryptocurrency exchanges become an intermediary from the buyer plus a seller making money through commissions and transaction fees. You can think of a CEX to get such as a stock exchange nevertheless for digital assets.
Similar to stock investing websites or apps, these exchanges allow cryptocurrency investors to purchase and then sell digital assets in the prevailing price, called spot, or leave orders which get executed if the asset extends to the investor’s desired price target, called limit orders.
CEXs operate employing an order book system, meaning buy and sell orders are listed and sorted from the intended buy or sell price. The matching engine of the exchange then matches buyers and sellers based on the best executable price in the desired lot size. Hence, a digital asset’s price is determined by the production and need for that asset versus another, whether fiat currency or cryptocurrency.
CEXs pick which digital asset it's going to allow trading in, which gives a tiny way of measuring comfort that unscrupulous digital assets could possibly be excluded from the CEX.
Decentralized Cryptocurrency Exchanges (“DEX”)
A decentralized exchange is yet another type of exchange that permits peer-to-peer transactions directly from your digital wallet without going through a middleman.
These decentralized exchanges depend on smart contracts, self-executing bits of code over a blockchain. These smart contracts enable more privacy much less slippage (another term for transaction costs) than the usual centralized cryptocurrency exchange.
On the other hand, although smart contracts are rules-based, the lack of an intermediary third party implies that the user stays to their own, so DEXs are designed for sophisticated investors.
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