Types of cryptocurrency exchanges.

Types of cryptocurrency exchanges.

Comments

There are three types of cryptocurrency exchanges:
- Fiat exchanges
- Centralized exchanges
- Decentralized exchanges

Cryptocurrency traders very often think of selecting a trading platform for cryptocurrency trading. It is sometimes necessary to purchase a cryptocurrency for fiat money — in this case a service is needed for simple exchange of fiat for cryptocurrencies.

 

There are three types of cryptocurrency exchanges:

- Fiat exchanges

- Centralized exchanges

- Decentralized exchanges

 

Fiat exchanges


This class cryptocurrency exchanges is most similar to classic stock exchanges. The main function of this type of exchanges is to provide their clients with the possibility to purchase cryptocurrencies. It is worth noting that the currency can be purchased by means of ordinary online exchange services, but today this method cannot be called a right one. Online exchange services are not specialized operators for exchange of fiat money for cryptocurrencies. Exchange of money from various electronic payment systems for cryptocurrencies was added in functions of these services recently, with increased popularity of cryptocurrencies. Initially, this kind of services was intended for exchanging money from some electronic systems for money from other electronic systems.

Fiat cryptocurrency exchanges favorably differ from the online exchange services mentioned above by regulation by central banks and, as a result, by high financial reliability. If you want to purchase a cryptocurrency for fiat money, cryptocurrency exchanges that sale cryptocurrencies for fiat money are the best choice for you.

In view of the fact that fiat crypto exchanges are strictly financially regulated by state authorities (usually by central banks), the list of cryptocurrencies available for purchasing offered by these platforms is very limited. Usually you can purchase for fiat money only the most popular cryptocurrencies that are leaders in terms of capitalization (Bitcoin, Ethereum and some other currencies).


Examples of fiat crypto exchanges are Coinbase and Gemini.


Centralized exchanges


Centralized cryptocurrency exchanges allow you to purchase from a more extensive list of cryptocurrencies. However, unlike fiat crypto exchanges, it is not possible to purchase cryptocurrency for fiat money here. All cryptocurrency is purchased here for the most marketable cryptocurrencies, for example for Bitcoins and Ethereum. In other words, in order to purchase cryptocurrencies on a centralized exchange, you will have to first convert the fiat currency on a fiat crypto exchange.


Centralized cryptocurrency exchanges allow you to purchase from a relatively large list of cryptocurrencies. Here you can easily buy almost all liquid altcoins: Monero, Ripple, ZCash etc.

If we talk about the list of cryptocurrencies available for purchasing, we should mention the fact, that centralized crypto exchanges are also regulated by state authorities, although less strictly than fiat exchanges. In this regard, centralized exchanges offer for purchasing only cryptocurrencies having certain persons and companies behind them. Trading on the stock exchanges of this class, you can be sure that you will not accidentally purchase any illiquid assets that might subsequently just depreciate.


It is also worth noting that such exchanges are quite appropriate for trading with cryptocurrencies. Of course, trading with derivative financial instruments for cryptocurrencies is available for quite some time now, for example bitcoin futures on Chicago Mercantile Exchange (CME) and Chicago Board of Options Exchange (CBOE). However, trading conditions of such trading platforms are high even by the standards of professional traders. So, for new traders and traders with little capital, centralized cryptocurrency exchanges remain the most appropriate choice.


Examples of centralized crypto exchanges are Binance and Kucoin.

 

Decentralized exchanges


From the technical point of view, it is the most advanced version of cryptocurrency exchange organization. Unlike the first two types of exchanges, exchanges of this type do not centrally store user information of the clients and their money. From the point of view of information security, it is an undoubted advantage. It is almost impossible to crack a decentralized crypto exchange, at least by the common practices of carrying cyber attacks.

From a financial standpoint, exchanges of this type are less reliable: on such exchanges, new cryptocurrencies appear almost every date and often have doubtful reliability. For this reason, purchasing of cryptocurrency assets on such trading platforms may result in loss of investment. Regulation of decentralized crypto exchanges is carried out to a significantly lesser degree than for centralized and fiat exchanges. This type of crypto exchanges is therefore more appropriate for experienced traders and investors who can competently assess the level of risk when purchasing lesser-known cryptocurrencies. A beginner should better choose a centralized or fiat crypto exchange.

An example of a decentralized crypto exchange is Bitshares.