Cryptocurrencies are still trying to reach universal acceptance. They are presently notorious for their fickle prices that change at a moment’s notice. Fortunately, this has not discouraged many from embarking into and investing in this domain. This is because many have begun to view cryptocurrencies as an attractive alternative to the stock market. With some cryptocurrencies promising a return on investment that exceeds 3000%, investors have never been so happy. However, in order to organize crypto trading, cryptocurrency exchanges are required.
What Is A Cryptocurrency Exchange?
They are nothing but exclusive online (or offline) platforms that facilitate the buying and selling of different digital assets. Today, there are a number of exchanges that allow a variety of trades such as crypto to crypto, crypto to fiat, crypto to bullion and much more. Unlike traditional forex or stock markets, a cryptocurrency exchange never sleeps. It functions around the clock and only takes predetermined breaks to run maintenance or upgrade the security.
The exchanges also uphold the foundational tenets of cryptocurrencies. They allow users to trade in an anonymous manner and protect transactions using encryption. However, cryptocurrency exchanges differentiate themselves based on the level of control the user enjoys and the degree of security it offers.
Types Of Cryptocurrency Exchanges
Broadly speaking, there are three types of cryptocurrency exchanges and they come with its own set of pros and cons.
- Centralized Exchanges: As the name suggests, this category of exchanges are operated by an intermediary who is identified by all members on the platform. Meanwhile, to enable trade, users have to mandatorily store their assets on the wallet owned by the exchange. It should be noted that the user does not have access to the private keys to this wallet. Moreover, all transactions executed on the platform are authorized by the exchange. Centralized exchanges are popular for their high throughput rates that enable users to initiate multiple orders at once. This allows traders to take advantage of the volatile nature of the cryptocurrency market. However, owing to their centralized nature, exchanges in this category are susceptible to hack attacks.
- Decentralized Exchanges: This type of exchange upholds the decentralized legacy that Bitcoin creator, Satoshi Nakamoto envisioned for cryptocurrencies and blockchains in general. Here, the exchanges are not owned by a single entity and instead functions as a community effort. Moreover, the platform only acts as a matching network that connects buyers with sellers and the user is not required to channel their cryptos to a consolidated wallet. This enables the user to exercise greater control over their funds, information, and transactions. Hence, it comes as no surprise when decentralized exchanges excel against security threats. However, when it comes to executing transactions, decentralized exchanges are terribly slow.
- Hybrid Exchanges: This exchange makes the best of both worlds. Hybrid exchanges combine the advantages of centralized exchanges with those of decentralized exchanges. Thus, users enjoy higher throughput rates as well as greater autonomy over their assets. Hybrid exchanges are growing in popularity and many traders are constantly on the lookout for newer platforms.
Crypto-trading is on the rise as more and more people are beginning to understand the benefits of cryptocurrencies. Furthermore, several exchanges are reporting daily trade volumes that run into the billions. Hence, opening a cryptocurrency exchange is a very lucrative business. In 2019, it is very easy to Start your own Exchange Platform. This is made possible with the presence of multiple cryptocurrency and blockchain development companies. Many firms offer white-labeled and customized solutions that can be modified to meet your business requirements. However, it is always advised to exercise due caution and to do proper research before selecting a development firm to create your cryptocurrency exchange.