Today we have a lot of cryptocurrency exchanges in the market. In situations where you need to trade crypto your hold for another, that when we seek the service of digital asset exchange. These platforms offer users from a diverse background to trade digital assets securely without necessarily knowing each other.
For example, a crypto exchange will connect me to prospective buyers or sellers of a digital asset. If I have Bitcoin and want BAT, using exchange will enable me to reach out to individuals who also want Bitcoin for their BAT holdings. $Now let's look at what kind of exchanges we have and which one t use and at what time are they suitable.
Type of Exchanges
Crypto exchanges can be categorized based on their architecture and sometimes their business process (eg. compliance with regulations). These may include the following, however, they may be others aside what's is listed below:
1. Centralized Exchange
2. Decentralized Exchange
3. Instant Exchange
These are the most popular and widely used exchanges. They are sometimes referred to as custodial exchanges. This is because they hold customers' funds and help them trade with unknown parties. Usually, they are responsible for securing and maintaining their wallets that store users' funds. They use memo's as a mechanism to different users and their deposits due to the fact that they use a single wallet address for all users in most cases. Examples include Binance, Huobi, OKEx, Bitfinex, Bitrue, etc.
- They have a huge user base and have good liquidity. These exchanges are ideal for larger trades as you can liquidate your assets with ease. At the time of posting Binance had a 24hr trading volume of over $2.6 billion. This basically shows how heavy people are buying and selling on Binance.
- Centralized exchange a substantial amount of assets and trading pairs. This give users a wide range of assets to trade. According to Coinmarketcap, the top two exchanges by trading volume have over 500 trading pairs.
- Lately, centralized exchanges offer investment products for their customers. This help their customers to generate passive using their platforms. Many exchanges now support staking, savings, lending, etc.
- "Not your keys, Not your crypto" - Centralized exchanges as said earlier in the post keeps custody of users' funds. This means whenever an exchange has issues and goes non-operational, you literally don't have access to your money. We've seen this happen several times with Coinbase users as users miss out on opportunities due to Coinbase's systems misfunction.
- Because funds are kept on these exchanges, they serve as a hotspot for attackers. When we go back to history we've had several incidents of hacks which resulted in the loss of users' funds.
These are another set of exchanges that were introduced to address the issues of centralized exchanges. They rely on smart contracts that ensure users trade while they have full control of their funds. It works in the opposite as centralized exchanges. Examples include ForkDelta, EtherDelta, and IDEx build on Ethereum blockchain protocol and now Binance Dex on Binance Mainnet.
- Users have full control of their funds
- Much secured as there is no central authority that controls the funds
- Get access to small caps and unpopular tokens. In the case of EtherDelta anybody can list an ERC20 token using its smart contract
- Liquidity is a serious issue when it comes to decentralized exchanges.
- Every operation comes with a fee. For instance, placing or canceling an order on Binance Dex requires a fee in BNB which is quite cool but it's a whole different story on Ethereum as fees are relatively expensive.
- It somehow complicated to trade on decentralized exchanges
As the name suggests these are non-custodial that help users exchange their favorite coins and tokens in a matter of minutes. Saves you the time and difficulties in having to go through the normal trading process. A typical example is changeNOW instant exchange.
- Instant, easy, and simple to use
- Because they have more than one liquidity providers, they have a good number of assets to swap
- Non-custodial unlike centralized exchanges
- A selected number of popular assets. It does support all coins and token like that of decentralized exchanges, most specifically EtherDelta, McAfeeDex, etc.
- Average liquidity pool for small retail buyers. It not ideal for larger orders.
The Exchange Process
Now let's look at the process of trading on exchanges. We will see how the process is with a centralized exchange(BitMax), Decentralized(BinanceDex), and an instant exchange (changeNOW).
All centralized exchanges require you to create an account in order to trade. This is a basic requirement and without an account, you can do anything on an exchange.
After creating an account, some exchanges will request for you to active 2-factor authentication and sometime set pin codes, passwords for assets(different from your account password) as a security protocol. When you are done with this process, you can proceed to deposit funds into your account to start trading.
I took this shot from BitMax exchange. They have two interfaces for spot trading, i.e. Standard - which is described as "simple and easy-to-use" on the Professional - this is for professional traders. The interface allows users to buy and sell cryptos of their choice on the platform. It is composed of charts, order book, available pairs, price information, and so many interesting data.
In order to execute a trade, either buy or sell, you will have to enter the amount of asset and the price at which you want to sell or buy in the designated form. Place the order and wait for your order to be filled. Once successful, your account reflects what exactly took place by updating your balance accordingly. There is also an option to decided how your order is executed. e.g. limit order, market order, stop Limit order, etc.
Decentralized exchanges work in the same fashion in regards to the trading processing. You basically have to fill a form with your price and the amount of token and click on either the "buy" or "sell" buttons to place your order. This uses smart contracts to execute trades on decentralized exchanges. The major difference is the non-custodial nature of DEX as you still have full control of your money whiles connected to the exchange.
Most don't require an account, however, DEX like Loopring.io supports account creation after connecting to the exchange.
Binance is one of the preferred DEX as it good liquidity for some popular token. They also have a nice user interface. If you don't critical take a look at it or if it's your first time, you might think it's a centralized exchange.
To trade on Binance DEX, you will need to connect your existing wallet. It also supports creating an entirely new wallet that comes with a private key. The most convenient way to connect to the exchange is via Wallet Connect - an infrastructure that helps to connect mobile wallets to dAppas. Other options include using your recovery phrase, Keystore file, etc.
These kinds of exchanges require no account creation. You basically have to follow a simple process to place an order. After that, you send your crypto to be swapped to the desired crypto. They are most often easy to use and comes a real simple interface.
This is changeNOW's platform that allows for instant swapping of crypto. This is literally the landing page and the actual exchange form takes a very small portion of the screen. It has a sleek and appealing interface that I believe anyone can use without assistance. ]it has an option to buy crypto with your bank card.
To exchange takes just three basic processes. i.e. "Enter exchange details --> Confirm exchange --> Complete Exchange"
Which Exchange Should You Use?
This is based on my personal experiences with these exchanges and I am going, to be honest as much as possible.
I have used a couple of centralized exchanges for some time now and I use Binance often due to liquidity and security. However, I don't keep my funds on exchanges, When I'm done trading, I quickly move my funds to my wallet to be on a safer side. In reference to the user interface and ease of use, Binance and other CEX have great UI but I believe it going to be a bit difficult for newbies to use and set up a 2-FA application in order to bind with exchange account may be very challenging for most people.
I created an account on BitMax yesterday and bought some tokens which I had to enable 2-factor authentication. I tried to withdraw to my wallet and I received an error message that I will have to wait for 24hrs after enabling 2-FA to withdraw. This wouldn't happen if I had used a Binance Dex or changeNOW.
A few years ago, DEXes had compl]ex UI, however, they are better now. Security-wise they are ideal but most lack liquidity. Most people prefer to use CEX than DEX leading the CEXs having more volume. Connecting to the DEX by exporting private key or recovery phrases can be compromised in the process.
ChangeNOW offers a simple and easy way to instantly swap over 200 assets and over a thousand pairs. With changeNOW, you don't need to create an account and no upper or lower limits on transactions. With CEX, you are required to pass KYC in order to withdraw above 2BTC. You only need KYC for crypto purchases or if your transaction seems suspicious in the case of the hackers that got off with victims BTC in the recent twitter hacks.
As demonstrated before, the platform is intuitive and can be used by all regardless of your level of crypto knowledge. It's also accessible and available in multiple versions, from an android and IOS app to a telegram. This allows users to swap crypto whichever way they want.
changeNOW has partnered with popular wallets in the space like Atomic Wallet - non-custodial multi-crypto wallet, making it possible for their customers to swap cryptos without leaving their wallets and ensuring the best rates as changeNOW has multiple liquidity providers.
Atomic Wallet Desktop app with built-in exchange powered by changeNOW
Learn How To Exchange BAT For ETH On ChangeNOW here