Important Specifics 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 can be traded for other cryptocurrencies such as 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
Once you have your money deposited on a CeX, the process of purchasing your cryptocurrencies is easy. The CeX usually comes with a built-in crypto wallet that you can use to store your cryptocurrencies. You also get the option of withdrawing your crypto assets to an external wallet.
Every centralized exchange features a different internal architecture; however, most centralized exchanges operate with order books that match buy and sell orders.
The order book of A CeX lists all orders (buy or sell) made by users who want to trade cryptocurrencies on the exchange. Prices range from the lowest, best bid, highest, and most expensive.
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
Decentralized exchanges are also easy to use; however, there is a learning curve involved. 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 categories of decentralized changes: order-book-based decentralized exchanges and automated market-making DeXs.
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. They use a decentralized framework for matching and settling transactions. Automated market-making DeXs don't use order books. 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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