What Is Cryptocurrency?
A cryptocurrency is a virtual or digital currency secured by cryptography. As it is highly secure, it is virtually impossible to double-spend or counterfeit.
Most cryptocurrencies are decentralized networks that are based on powerful blockchain technology. They are not managed by any central authority which renders them virtually immune to manipulation or government interference.
A cryptocurrency exchange is an online platform where users can buy and sell digital currency and other assets. In many ways, they are similar to stock exchanges.
Blockchain technology ensures the integrity of transactional data and forms the building blocks for most cryptocurrencies. It is essentially a distributed ledger managed by a network of computers.
It’s fairly easy to begin trading on cryptocurrency exchanges and it takes less than an hour to get started.
In the guide below, we’ll help you understand how crypto exchanges work, the differences between decentralized and centralized exchanges, and things to consider before starting to trade on cryptocurrency platforms.
How Do Cryptocurrency Exchanges Work?
In general, when users place buys or sell trades the exchange matches them based on supply and demand and an acceptable price point. The exact method used depends on the type of exchange and the specific exchange.
There are two basic types of cryptocurrency exchanges:
- Centralized Exchange (CEX)
- Decentralized Exchanges (DEX)
Here’s a quick summary of centralized vs decentralized exchanges:
|Centralized Crypto Exchange||Decentralized Crypto Exchange|
|Platform||Third-party handles transactions||Peer-to-peer transactions|
|Types of trades||Crypto-to-crypto, fiat-to-crypto, leverage trading||Crypto-to-crypto only|
|Private Keys||Exchange holds custody of the private keys||The user holds custody of their private keys|
|Security||Risk of hackers and theft||Minimal risk of hackers and theft|
|Ease of use||Easy – similar to working with a bank||Can be complex|
|Fees (Range)||Low (0.025%) to very high(0.4%)||Zero (0%) to high (0.3%) + Gas fees|
|Liquidity||High liquidity||Low liquidity|
Centralized Cryptocurrency Exchange
Centralized cryptocurrency exchanges have a third party or middle man who oversees the day-to-day operations and completes the transactions like a bank.
Ease of use – trades are handled much like bank transactions so they are familiar to most people, even beginners.
Highly liquid – some of the top cryptocurrency exchanges are centralized exchanges so it’s typically easier for buyers and sellers to make trades in a timely manner with less price volatility.
Fiat gateway – buyers and sellers can trade with conventional fiat currencies like dollars, euros, pounds and yen in addition to crypto currencies.
Hacking risk. Because of their centralized design, these exchanges are often targets for hackers and thieves.
Higher transaction fees. The ease of use and convenience they provide often comes at a higher cost.
Lack of privacy. Users must complete some type of verification which may vary from simply confirming their email address to providing detailed personal and bank information.
Decentralized Cryptocurrency Exchange
Decentralized exchanges are peer-to-peer platforms. That is, users buy and sell directly. There is no middle man. The exchange operates on a network of computers and completes transactions via an automated process.
Bitcoin was the first decentralized cryptocurrency in the world. It uses public-key cryptography to sign and record all transactions over the Bitcoin blockchain.
Despite the benefits of decentralized exchanges, they aren’t nearly as popular as centralized exchanges mainly as they are more technically challenging to use.
Transparency. There is no middle man, only offer peer-to-peer trades which mitigates market and price manipulation.
Reduced risk of hacking or downtime. Because they operate on a network of computers there is no central or single point to hack or go down.
Anonymity. Decentralized exchanges do not require users to verify their identity.
Security. Users have complete control over their assets at all times.
Can be complex to use – aside from getting familiar with the platform and the process, users must remember keys and passwords or their assets could be lost forever.
They do not allow fiat trades – unlike centralized exchanges, decentralized exchanges only offer crypto-to-crypto trades, making them less convenient for users who do not already hold cryptocurrencies.
Low liquidity – due to the lack of trading volume at times, it may be difficult for some sellers to find buyers and vice versa in a timely manner.
Comparing Cryptocurrency Exchanges
There are several cryptocurrency exchanges but they are not all created equal.
Bigger exchanges offer more security and liquidity but often miss out on newer, promising projects. They are often very strict with identity verification requirements (Know Your Customer or KYC) and have slow support.
These exchanges also typically offer the best cryptocurrency exchange rates.
Smaller exchanges offer more speculative tokens, more lenient KYC requirements, and more responsive support. However, liquidity on the exchanges is quite low, meaning that you may lose money when you trade due to slippage.
Many smaller crypto exchanges often lack security and don’t hold emergency insurance funds, which protect your savings in case of a hack.
Features, as well as fees, can vary wildly from exchange to exchange.
As if this wasn’t already confusing enough, there is a new generation of exchanges called Decentralized Exchanges (DEXs), which come with a unique set of features such as no governing authority, no KYC requirements, and direct ownership of your assets.
DEXs are however more complicated to use and recommended for more experienced and speculative traders. Since DEXs have no support, one mistake can lead to losing all of your funds or paying an extraordinary amount of fees.
To make it easier for you, we recommend sticking with the top centralized cryptocurrency exchanges.
What Are the Top Cryptocurrency Exchanges?
The list of top cryptocurrency exchanges will vary based on the type of exchange (centralized or decentralized), the type of cryptocurrencies you are looking to buy or sell (bitcoins or altcoins), and the trading features you are looking for.
However, some exchanges are really well known and tend to offer the best stability, functionality, and coin supply.
Based on liquidity and trading volume, CMC lists these as the top cryptocurrency exchanges:
|Crypto exchange||Liquidity score||Markets||Coins|
What Are the Next Cryptocurrency to Explode in 2021?
The crypto world is constantly changing and we’ve seen many new cryptocurrencies like Safemoon and Dodgecoin.
Safemoon is one of the most successful crypto stories with a 777 trillion initial supply, and a $1,000 investment would have been worth about $3.5 million today.
Let’s move over to EverGrow COIN as it aims to become the next big crypto currency in 2021. It’s the first Yield Generation token that rewards users in USDT. It uses a unique buyback mechanism that offers consistent returns and benefits.
With that being said, here’s why we think EverGrow COIN could be the next cryptocurrency to explode in 2021:
- With every transaction, it redistributes 8% of the transaction to the wallets of all transaction holders. This is an automatic process and each user gets a share in proportion to the EverGrow coins they hold.
- Also with every transaction, 3% is sent to the buyback reserve. The tokens are locked and stored in the contract, designed so that the BNB in strategic reserves can’t be withdrawn, only used to purchase EverGrow COIN.
- With the anti-Whale system, a 1% charge is applied to sales and this lowers Whale manipulation and the volume of swing trading.
- The liquidity of EverGrow COIN is locked for a 12-month term on PancakeSwap and no member can withdraw. Team tokens are locked and unlocked cyclically and this reduces sell-off influences on the current price.
Cryptocurrency prices are determined by various factors. For example, bitcoin prices are determined by:
- The market demand and supply
- The cost of producing a bitcoin
- The rewards given to miners for verifying blockchain transactions
- The number of competing cryptocurrencies
- The exchanges it trades on
- The regulations governing the buying and selling
- Internal governance
How to Find the Best Cryptocurrency Exchange
The best cryptocurrency exchange platform for you will depend on several factors, including the type of exchange you prefer, the kind of cryptocurrencies you are looking to buy or sell, and your level of expertise. So, it’s important to consider what’s most important to you and then do your homework.
How to Find the Best Cryptocurrency Exchange
First and foremost, confirm that the exchanges are available to operate in your country of residence and that there are no trading restrictions. Big exchanges like Binance are not available in the US, so they use subsidiaries such as Binance.us, which however has much less liquidity than the main exchange.
Payment methods vary among cryptocurrency exchanges – from bank wire transfers only to cryptocurrency only, to accept Visa and Mastercard. Check to be sure your preferred methods of payment are available.
If you are just getting started, having access to an exchange that allows for direct fiat to crypto exchange is essential.
Look for exchanges that have been in the market for years and have a strong reputation. Pay importance to a transparent organizational structure, a large and experienced team, independent audits, a large social media following, and generally positive customer reviews across different platforms.
If an exchange is not secured properly, you could lose your assets. Research for previous hacks on the exchange and how they dealt with each case. Check if there are insurance funds covering potential hacks and how the timeframe that users get compensated in case of such events.
Also verify that security systems are available such as 2FA, IP and device whitelists, withdrawal address management, and cold wallet storage of non-trading assets.
Different companies have different pricing models so compare all exchange fees and be sure you understand their fee structure. Some have a flat fee per trade while others require a percentage of each trade based on their specific criteria. In either case, fees generally decrease with an increase in the amount and frequency of trades.
Also, check for any deposit or withdrawal fees. Companies may offer quick and convenient ways to buy and sell cryptocurrencies such as with a credit or debit card, but they may also come with much higher fees.
Not all cryptocurrency platforms offer access to all coins so, it’s important to know if a particular exchange has the specific cryptocurrencies you want. Choose exchanges that have a large number of listed tokens/coins and that regularly announce new listings. Also look for exchanges with a high number of trading pairs, which will give you more trading options, and minimize your fees.
Look for exchanges with high trading volumes, and high liquidity index scores. The higher the market’s liquidity, the less trade slippage will occur when you trade, saving you significant money in the long run.
As you become a more experienced crypto trader, you will be looking for new ways to mitigate your risk or increase your potential earnings. Using an exchange that offers a variety of trading features such as leveraged trading and perpetual futures is an important arsenal in your trading strategy.
What is cryptocurrency mining?
Crypto mining can be seen as a way to create new crypto coins. Cryptocurrency mining involves the validation of crypto transactions on the blockchain network, and then adding them to a distributed ledger. One important factor of crypto mining is that it prevents double-spending on the network.
When someone spends cryptocurrency, the ledget must be updated be debiting one account and crediting another. But the challenge in this is that digital platforms are easy to manipulate.This is why Bitcoin’s ledger, for example, only allows verified miners to update ledger transactions.
As a reward for miners doing their work, new coins are created. This is a crucial benefit since there is no centralized authority for these distributed ledgers, so the mining process is crucial.
To start mining crypto, you’ll need a computer with special software that is designed to solve complex cryptographic equations. You’ll typically need a specialized GPU or ASIC (application-specific integrated circuit) miner. You’ll also need a reliable internet connection and be a member of an online crypto mining pool.
What is the best cryptocurrency?
There are many different cryptocurrencies but some of the best cryptos include Ethereum (ETH), Dodgecoin (DOGE), Binance Coin (BNB), Bitcoin (BTC), and Solana (SOL).
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- How Does a Cryptocurrency Exchange Work? (In 2020) – Coinzilla.com
- What is a Cryptocurrency Exchange? – CryptoCurrency Facts
- How Do Cryptocurrency Exchanges Work? – BTC Wires