Key Details About Cryptocurrency Exchanges
For anyone looking to get started as a crypto trader, cryptocurrency exchange platforms offer one of the best venues for buying and selling cryptocurrency.
As the number of cryptocurrencies on offer continues to grow, most crypto exchanges have grown accustomed to offering users a variety 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
It is very easy to purchase your cryptocurrency once your money has been deposited on a CeX. The CeX often comes with a built in crypto wallet, which you can use for your cryptocurrencies. You also get the option of withdrawing your crypto assets to an external wallet.
Each centralized exchange has a unique internal architecture. However, most exchanges have order books that match the 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.
The platform operators will match orders and provide liquidity to enable efficient trade execution and the highest price.
How decentralized crypto exchanges work
Although decentralized exchanges can be very easy to use, there are some learning curves. These exchanges let you buy cryptocurrencies from other users using only the blockchain as an intermediary.
DeXs are great for people who want to exchange cryptocurrencies without having to go through a third party and trusting a central entity with the safety of their funds.
There are two categories of decentralized changes: order-book-based decentralized exchanges and automated market-making DeXs.
Decentralized, order-book-based exchanges work in the same manner as centralized exchanges. They list all orders on an online order book and price range from the lowest asking prices to the highest bids. They use a decentralized framework for matching and settling transactions. Order books are not used by automated market-making DeXs. Smart contracts are used to match and settle orders between users' wallets and smart contracts. AMM DeXs can also source liquidity from platform users.
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