Cryptocurrency exchanges play a fundamental role in the digital currency ecosystem. They provide the main transition point between fiat and virtual currencies whilst also managing the prices of individual tokens and coins. However, no matter their importance, the work made by cryptocurrency exchanges is often overlooked or misunderstood. This guide should help you better understand these fascinating platforms.
There are currently three main types of cryptocurrency exchanges. These are:
Centralised Exchanges (CEX) are the traditional ones that are managed by a company or central organisation. Their primary role is to exchange digital currencies, with the majority accepting fiat conversions. An example of a centralised exchange is the aptly named, CEX.io.
CEXs can be further categorised into Synchronous Exchanges and Asynchronous Exchanges. Synchronous Exchanges comply with user’s requests through a single transaction. Such platforms are generally small and more prone to failures. They are not designed to handle large volume transactions.
Asynchronous Exchanges, meanwhile, put user’s requests in a queue. Requests are processed individually using a layering system that communicates the status of each request directly to the interface. With this infrastructure, these exchanges are capable of handling both small and large volumes of transactions.
A Decentralised Exchange (DEX) is different from a CEX as it does not depend on any organisation to function. Service is offered to users through an automated process and assets are exchanged in what is known as a peer-to-peer (P2P). DEXs are built using blockchain technology and smart contracts. It is not surprising to learn, therefore, that most of these exchanges operate using Ether.
A Hybrid Exchange combines the characteristics of CEX and DEX. These exchanges offer a very safe transaction environment which also offers high speeds and low latency. Although it may be owned by a central organisation it does not depend on it to carry out transactions, basing itself on the rules set about in the smart contract.
With CEXs being the preferred exchange for most crypto traders, asking why DEXs exist in the first place is certainly a fair question. In reality, whilst CEXs facilitate cryptocurrency transactions they not as autonomous as you would expect, given the decentralised industry they operate in.
DEXs are built on the notion that cryptocurrency transactions should have no third parties. The sender and receiver should be the only ones involved, yet CEXs also include a platform, which is managed by a central entity. This entity is ensuring that your money is safe, but is also taking a fee for this.
With DEXs you and only you are responsible for the security of your funds. Your control includes the decision on exactly when and how to trade or carry out other transactions. In these ways, such exchanges offer you the most personal trading experience you can ever hope for.
With the world’s attention to the cryptocurrency industry only set to increase, it is inevitable that major brands and corporations seek to establish and develop their presence so as to remain relevant. In the future, all businesses would need to adapt to Blockchain technology, similarly to how they had to adapt to the Internet. However, […]
One of the most mysterious names of the 21st century, Satoshi Nakamoto is the person or group responsible for the creation of Bitcoin. Nakamoto wrote the Bitcoin White Paper and created its reference implementation. His actions would lead to a revolution in peer-to-peer technology and give rise to Blockchain technology. An Unresolved Mystery While Satoshi […]
Blockchain is the underlying technology upon which digital tools are built. The most popular amongst these tools are cryptocurrencies. In fact, blockchain was developed as a way to support the first cryptocurrency, Bitcoin. Beyond just supporting digital transactions, however, blockchain is poised to revolutionise the world, by facilitating everything from smart contracts to national elections. […]
Fiat Currency is the term coined to describe money which is government-issued but is not backed by any type of commodities, such as silver and gold. Today, the majority of national funds fall under this category, with the value of the currency set by individual governments or central banks. Although they might appear worlds apart, […]
As an experienced cryptocurrency trader or investor, you’ve probably already heard the term margin trading. So far, you have had to use your own funds to speculate, but what if you could amplify the amount you trade, in order to generate a higher return, faster? This, in essence, is the definition of margin trading. Margin […]
Centralised Exchanges (CEXs) and De-centralised Exchanges (DEXs) represent the majority of cryptocurrency exchanges available today. They both carry out the same basic function; that of offering cryptocurrency in exchange of either fiat currency or other cryptocurrency. However, what distinguishes them is the way in which they carry out this function. When Bitcoin was created, its […]
Wallets play a very important role within the cryptocurrency industry, but cold wallets and hot wallets play this role considerably differently. Either type of wallet has its own attributes and limitations which make it an indispensable tool for traders and investors, but these same attributes also make it vulnerable to different threats. Commonalities between Wallets […]
A hardware wallet is deemed as the safest category of wallets as it stores your cryptocurrency offline, in a physical device you can carry around with you. In an industry which is increasingly plagued by malicious attacks and cyber hacks, this cold storage device can help you protect your Bitcoin and other currencies. The Main […]