What is a Crypto Exchange? Defined & Explained

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I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

Are you interested in cryptocurrency exchanges? Exchanges are perfect for beginners and advanced investors wanting to get into crypto.

Cryptocurrency exchanges are third-party platforms that facilitate crypto buying, selling and trading.

In this article, you can learn why these exchanges came about, how to use them effectively, the different types of crypto exchanges, who they are for and how to keep your money safe and away from hackers.

This article will’ go over the advantages and disadvantages of cryptocurrency exchanges. We’ll also help you decide between a decentralized and centralized cryptocurrency exchange.

Check out the frequently asked questions about crypto exchanges and what to look for in an exchange platform. We’ll help you decide if cryptocurrency exchanges are for you and teach you how to open an account.

Read on to learn more about cryptocurrency exchanges and how you can get involved!

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Key Takeaways
  • Use crypto exchanges to buy, sell, trade, invest and learn.
  • Each exchange offers different cryptocurrency coins.
  • Consider security, transaction fees, liquidity and accessibility when making your choice.
  • There is a difference between centralized, decentralized and hybrid exchanges.

What are Cryptocurrency Exchanges?

Cryptocurrency exchanges provide a way to buy and sell digital currencies. You can keep your digital assets in the exchange or trade digital cryptocurrencies.

There are several digital currency exchanges, including centralized and decentralized cryptocurrency exchanges, and the best platform for you depends on your needs and preferences.

How Does a Crypto Exchange Work?

how a crypto exchange works

Crypto exchanges mediate between the customer and the crypto provider, exchanging and trading currencies such as Bitcoin, Dogecoin or Ethereum.

Customers create an online account to upload money or connect a credit card, then trade, sell or buy new crypto. Some crypto exchanges offer peer-to-peer transactions where your money never goes through a third party.

Customers can find potential buyers and look for new crypto with these exchanges. Individuals created cryptocurrency exchanges to make crypto transactions easier.

The privately-owned platforms emerged to help make crypto easy and safe, and you can now purchase or trade crypto in a personalized way.

Every service has different features and assists people with choosing a cryptocurrency based on their unique needs. Cryptocurrency exchanges also exist to help people learn about crypto.

Some places even offer courses to help customers expand their knowledge of the crypto industry. Starting an account with a platform such as Binance.us or KuCoin is ideal for beginners looking to dip their toes into the digital currency world without huge risk.

Trading platforms work for individual investors by streamlining all crypto transactions in one place. Investors can purchase many types of crypto, exchange one currency for another or transfer crypto funds into U.S. dollars (USD).

Cryptocurrency exchanges have a structure with many features. The main use is buying crypto, but you can also sell, exchange and learn about new kinds of crypto.

You can also keep track of crypto values. Buy-and-sell orders let you set the price and amount of crypto you want to buy. Keep reading, and we’ll share examples of crypto, the difference between types of exchanges and tips for choosing a crypto exchange.

You’ll be well on your way to earning money with crypto investments!

Example of a Crypto Exchange

Binance.us is one of the most popular cryptocurrency exchanges and the parent company of Coinmarketcap. It’s a trading platform with a centralized structure and top cybersecurity, and most people use it for crypto-to-crypto trading.

Binance.us is like a crypto wallet. It’s where users can store their crypto, view it in one place and exchange it for USD or other forms of cryptocurrency.

Users can also earn interest on transactions, complete withdrawals and purchase Binance’s cryptocurrency, Binance Coin.

People like Binance.us because it’s secure and easy to use. Users create an account to trade, and Binance’s transaction fees are low.

There is no monthly fee to participate in Binance.us trading, and you can purchase crypto using USD.

Types of Crypto Exchanges

Read on to learn about the three types of crypto exchanges.

  • Centralized exchanges (CEX): Involve a third party such as Binance.us or Coinbase. The company holds your money and helps you trade with other cryptocurrencies. These platforms are more user-friendly for people who are new to crypto.
  • Decentralized exchanges (DEX): Host peer-to-peer transactions with no intermediary. There is less censorship, but they lack liquidity; DEX exchanges are better for advanced investors who already hold crypto.
  • Hybrid exchanges: Have the user-friendly features and liquidity of CEX while retaining the privacy and security of DEX. Your funds never transfer through a third-party organization.
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eToro provides investors, from beginners to experts, with a comprehensive crypto trading experience, on a powerful yet user-friendly platform. Start investing in crypto!

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

Advantages of Crypto Exchanges

Crypto exchanges have many advantages, from security to reliability.

  • Cryptocurrency exchanges have 24/7 trading, and you can make investments any time of the day. Unlike many investments which close overnight, there is no limit to the time of day you can invest in crypto.
  • Exchanges also help you with fractional purchasing. With fractional purchasing, you buy part of a stock instead of purchasing the entire share. This feature is an advantage of crypto vs. the stock exchange.
  • Centralized and hybrid exchanges have security features, as they often have firewalls against hackers and transparency about where your money is. Even DEX have security, as they are immune to corruption within an organization because they never hold your money in a separate account.
  • Crypto exchanges are user-friendly, and you can often use them on smartphone apps or your laptop. Most are transparent about transaction fees and publish them on their website.
  • Most importantly, cryptocurrency exchanges are reliable. Most crypto exchange companies are mutually beneficial, and it’s in their best interests that you have success and security.

Disadvantages of Crypto Exchanges

The crypto market has some disadvantages, and you may want to think twice before using certain exchange companies.

Read on to learn what to avoid when getting into cryptocurrency exchanges.

  • The issue of “not your keys, not your crypto” can lead to problems. Decentralized exchanges require you to remember your login information or risk losing your crypto funds.
  • As with any online transaction, there is a risk of being hacked. Many companies have insurance against hacking, but little government oversight means you can lose money to hackers.
  • Bankruptcy is an issue with crypto exchanges. For example, when Mt. Gox went bankrupt in 2014, thousands of customers lost their money.
  • Transaction fees are a disadvantage of CEX. However, DEX have cheaper fees.
  • Blockchain technology enables crypto to exist without a central authority, so cryptocurrency exchanges remain unregulated. You should be careful when dealing with companies outside your home country. Multi-billion-dollar trading company FTX engaged in money laundering, scaring many away from crypto.
  • Unlike fiat currency, crypto doesn’t require government backing.
  • Some companies such as Gemini and Coinbase keep your money in Federal Deposit Insurance Organization (FDIC)-insured accounts, but the FDIC does not insure the actual crypto balance.
  • Market price changes constantly, and your crypto may lose its worth quickly.

What to Look for in an Exchange

How do you choose a crypto exchange? We’ll help you find the platform that’s right for you.

  • Security is a significant factor when choosing a cryptocurrency exchange. See if the company has insurance, hacker prevention and offline storage.
  • Ensure your crypto exchange has high liquidity. Liquidity means your currency can exchange easily for other forms of money.
  • Make sure the crypto is accessible. You must ensure your funds are available and won’t get locked easily.
  • The management team is also an important component. Look into the company’s chief executive officer and leadership team to determine if you trust this company.
  • What coins does the exchange offer? Some have unique coins, some only a few, and others include dozens of crypto coins.
  • Check if the site has cold wallet storage options, an opportunity to store your crypto assets offline. Cold storage helps keep your funds safe from hackers.
  • Education tools are a big part of selecting a crypto exchange. You may want to inquire if the service teaches about crypto trading if you’re a beginner.
  • See if the crypto exchange uses a know-your-customer process. Knowing your customer helps verify users’ legality and keeps the other customers safe.

How to Open a Crypto Exchange Account

Follow the step-by-step instructions and get started with crypto.

  1. Do your research on several cryptocurrency exchanges
  2. Take into account the factors above
  3. Sign up for your chosen exchange
  4. Connect your bank accounts or deposit funds
  5. Buy, sell and trade cryptocurrencies

Should I Use a Crypto Exchange?

Are crypto exchanges a good choice for you? Consider all the factors when making your decision. Like brokerages, crypto trading exchanges work by mediating your crypto exchange and earning money per transaction.

They help you transfer money to other crypto companies or trade crypto coins.

The main types of crypto exchanges are centralized, decentralized and hybrid exchanges. You may want a safe, easy way to trade your cryptocurrency. That’s why we suggest a crypto exchange, which does much of the work for you.

Benefits of crypto trading include diversifying your portfolio, investing quickly and enjoying low fees. Consider if the crypto exchange is secure, reliable, affordable and able to handle high trading volumes.

You may worry about security, so we recommend seeing if the company has FDIC-insured and cold storage accounts. Now that you have information, you’re ready to make a decision and start making capital gains from crypto.

Take action and decide on a crypto exchange today!

Crypto Exchange FAQs

Learn everything you need to know about crypto with these commonly asked questions.

What is the difference between a crypto exchange and a wallet?

Crypto exchanges are for trading, buying and selling cryptocurrency. Crypto wallets allow you to store, send and receive crypto coins such as Altcoins, Bitcoin and Ethereum.

What is the safest crypto exchange?

There isn’t one answer to the safest crypto exchange, and the decision rests on your priorities.

Coinbase uses FDIC-insured accounts, eToro keeps funds in tier-one banks, and Kraken holds funds in cold storage, making them great candidates for the safest exchange.

Why should someone consider using a cryptocurrency exchange?

Crypto exchanges make crypto trading easy. Transactions go through the company safely and save you time and energy.

Can crypto exchanges take your money?

No, crypto exchanges do not take your money, but centralized crypto exchanges hold your money in an account.

Unfortunately, you may not get your money back if hackers invade the company.

eToro

eToro provides investors, from beginners to experts, with a comprehensive crypto trading experience, on a powerful yet user-friendly platform. Start investing in crypto!

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

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