Necessary Details About Cryptocurrency Exchanges
For anyone looking to get started as a crypto trader, cryptocurrency exchange platforms offer one of the best venues for buying and selling cryptocurrency.
The number of cryptocurrencies available is increasing and most cryptocurrency exchanges are now able to offer a wide range of coins, tokens or altcoins. These digital assets can be traded for other cryptocurrencies such as Bitcoin and Ethereum.
It can be difficult to choose the right exchange for you, given all of the options available.
How centralized crypto exchanges work
Once you have your money deposited on a CeX, the process of purchasing your cryptocurrencies is easy. The CeX usually comes with a built-in crypto wallet that you can use to store your cryptocurrencies. You can also withdraw your crypto assets to another wallet.
Every centralized exchange features a different internal architecture; however, most centralized exchanges operate with order books that match buy and sell orders.
A CeX's order book lists all orders (buy and sell) from users looking to trade cryptocurrencies on that particular exchange with prices ranging from the best offers, best bid, high, low, etc.
The platform operators will match orders and provide liquidity to enable efficient trade execution and the highest price.
How decentralized crypto exchanges work
Although decentralized exchanges can be very easy to use, there are some learning curves. These exchanges let you buy cryptocurrencies from other users using only the blockchain as an intermediary.
DeXs are great for people who want to exchange cryptocurrencies without having to go through a third party and trusting a central entity with the safety of their funds.
There are two types of decentralized changes: automated market-making DeXs and order-book-based Decentralized Exchanges.
Decentralized, order-book-based exchanges work in the same manner as centralized exchanges. They list all orders on an online order book and price range from the lowest asking prices to the highest bids. They use a decentralized framework for matching and settling transactions. Order books are not used by automated market-making DeXs. They use smart contracts to match and settle orders between a user's wallet and a smart contract. AMM DeXs can also source liquidity from platform users.
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