Cryptocurrency ABCs: Exchanges
Entering the world of cryptocurrency for the first time can be difficult. Learning all the terminology can be confusing and it is easy to feel overwhelmed. In this series, Cryptocurrency ABCs, we are going to cover important cryptocurrency terms and concepts from A-Z!
Let’s cover the letter E!
Cryptocurrency exchanges are online platforms where you can exchange one cryptocurrency for another cryptocurrency or for fiat currency.
An exchange is the platform you will use to trade cryptocurrency. Cryptocurrency exchanges can sometimes look and operate similar to traditional online trading accounts but there are some key differences. There are also some important differences that distinguish different types of crypto exchanges from one another.
As a cryptocurrency investor, the exchange will become your main tool for trading. Understanding the types of exchanges and the features they offer will help you pick the right exchange for your investment plan.
Types of Crypto Exchanges
In general, crypto exchanges can be put into three groups. There are fiat exchanges, Bitcoin/Ether exchanges and decentralized exchanges.
Fiat Exchanges – Fiat exchanges are centralized trading platforms that allow you to buy and sell cryptocurrency using a variety of fiat currencies. Fiat is a term for national currency that is not backed by a physical commodity. Kraken is a very popular fiat exchange that has support for a variety of fiat currencies including USD.
Bitcoin/Ether Exchanges – are centralized trading platforms that require you to fund your account with Bitcoin or Ethereum. These exchanges operate with Bitcoin and or Ether markets and prices of cryptocurrency are listed in Bitcoin, Ethereum and local fiat. An example of a Bitcoin exchange would be Bittrex.com.
Decentralized Exchange – The first two exchanges mentioned in this article are centralized, meaning that they hold the private keys to your cryptocurrency. This means that you must rely on a third party to protect your funds.This can be very problematic, because you are vulnerable to loss and if you want to trade, you must accept this risk to use the platform.
Another option you have is to use the BitShares Decentralized Exchange (DEX). The DEX offers a high-performance exchange capable of handling the trade volume of the NASDAQ while offering the benefits of a decentralized system.
Decentralization gives BitShares robustness against failure. When a centralized exchange is compromised, millions of dollars and thousands of users are impacted all at once. In a decentralized system, any attack or failure impacts only a single user and their funds. You retain control of your private keys and control access to your crypto.
Other decentralized exchange projects include 0x, Kyber and AirSwap, which allow users to trade their ERC-20 tokens for Ethereum through a peer-to-peer network. There are several other decentralized exchanges in development and it appears they will play a major role in the future of crypto trading.
List of Popular Cryptocurrency Exchanges
- Coinbase GDAX