What is an exchange?
Exchanging one value for another is an integral part of the financial system. With regards to cryptocurrencies, it is important for users to be able to exchange one cryptocurrency for the equivalent value of another, as well as a two-way exchange with fiat currency, such as the US dollar. That’s where crypto exchanges come in. They allow users to buy, sell, and trade cryptocurrencies. ## What is a crypto exchange? Crypto exchanges are online platforms that allow us to buy or sell cryptocurrencies. We can use exchanges to trade one currency for another (Crypto to USD and vice-versa) or one crypto to another crypto (Eg: Ethereum to Bitcoin and vice-versa). They reflect the current market prices of cryptocurrencies so that users are trading on up-to-date values. Crypto exchanges provide secure and reliable ways to trade, deposit, and withdraw currencies from their platform. ## Types of crypto exchanges #### Centralized exchange (CEX) Centralized exchanges work similarly to traditional stock exchanges. They act as an intermediary between buyers and sellers. With an easy-to-use interface, CEXs are especially helpful for new traders adjusting to the crypto ecosystem. As their name suggests, a central entity owns the CEX. They offer simple processes to connect your bank account so that you can transfer the funds in and out of the platform. Binance and Coinbase are the leading centralized exchanges. The major advantage of using CEXs is they are user-friendly. That said, a CEX will have control over your funds and are more prone to hacks and thefts. #### Decentralized exchange (DEX) DEXs also allow us to access cryptocurrencies, just in a decentralized manner. Users of a DEX can make peer-to-peer transactions without any intermediary. By replacing the traditional order book system, DEXs use liquidity pools or automated market making to provide liquidity to the users. Users will have complete control over their funds. Since all the funds are with the users, DEXs are less prone to hacks and thefts. In other words, they are highly secured. Additionally, users can trade crypto on a DEX anonymously. However, DEXs are not beginner-friendly and they don’t accept fiat payments. Uniswap, Pancakeswap, and Curve are a few examples of DEXs. #### Hybrid exchange (HEX) Hybrid exchanges have combined features of both centralized and decentralized crypto exchanges. Hybrid exchanges aim to provide the functionalities of CEXs along with the privacy and security of a DEX. You can have complete control over your funds while using a HEX and are allowed to make peer-to-peer transactions. Hybrid exchanges are easier to use than decentralized exchanges, and HEXs offer high transaction speeds and liquidity of CEXs along with the security of DEXs. However, Hybrid exchanges are still in the early stages of their development. Before choosing an exchange platform, we recommend you research the platform thoroughly.
