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In order to start buying and selling cryptocurrencies and other digital assets, the most common strategy 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 strategy for transacting in cryptocurrencies along with other digital assets is by a Cryptocurrency Exchange.

You will find Centralized and Decentralized Cryptocurrency Exchanges, and each offers benefits and drawbacks.

Centralized Cryptocurrency Exchanges (“CEX”)

Centralized cryptocurrency exchanges behave as an intermediary from a buyer along with a seller to make money through commissions and transaction fees. You can think of a CEX to become such as a stock exchange but for digital assets.

Just like stock investing websites or apps, these exchanges allow cryptocurrency investors to buy then sell digital assets with the prevailing price, called spot, or leave orders that will get executed once the asset gets to the investor’s desired price target, called limit orders.

CEXs operate utilizing an order book system, which means that buy and sell orders are listed and sorted with the intended buy or sell price. The matching engine in the exchange then matches consumers depending on the best executable price in the desired lot size. Hence, an electronic asset’s price is determined by the production and demand of that asset versus another, whether it be fiat currency or cryptocurrency.

CEXs pick which digital asset it’ll allow exchanging, which gives a smaller measure of comfort that unscrupulous digital assets could be excluded through the CEX.

Decentralized Cryptocurrency Exchanges (“DEX”)

A decentralized exchange is the one other kind of exchange that enables peer-to-peer transactions straight from your digital wallet without under-going a middle man.

These decentralized exchanges rely on smart contracts, self-executing components of code over a blockchain. These smart contracts allow for more privacy much less slippage (another term for transaction costs) when compared to a centralized cryptocurrency exchange.

However, although smart contracts are rules-based, deficiency of a middle man vacation signifies that the person stays to their own, so DEXs are designed for sophisticated investors.

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