What Is A Cryptocurrency Exchange?
A cryptocurrency exchange is similar to a stock exchange, but with a focus on trading cryptocurrencies, Tokens, NFT’s, and so on. Essentially, a crypto exchange offers a platform whereby customers looking to buy and sell cryptocurrency assets can exchange the digital tokens in values based on current market prices.
Usually, exchange platforms allow transactions or trades to take place in forms such as:
- Local fiat-to-cryptocurrency transactions, and
- Cryptocurrency-to-cryptocurrency transactions.
Some cryptocurrency exchanges offer a platform which is focused on ease for the customer, some hope to offer competitive pricing and others want to provide a platform which professional cryptocurrency traders can use.
What Are The Types Of Cryptocurrency Exchanges?
There are three different types of cryptocurrency exchanges:
- Centralised exchanges (CEX)
- Decentralised exchanges (DEX)
- Hybrids exchanges (HEX)
Centralized Exchange (CEX)
CEXes are most known and traditional in the crypto sphere. They are governed by a company that offers the options of both crypto-to-crypto trading and fiat-to-crypto gateway.
You can use the order books for your trades and in some advanced exchanges even some technical analysis tools.The biggest advantages are that CEX is easy to use and has great UI and UX, which go along with the quick response. In some of them, you simply register with your email, write down your password and you can trade.
You can be sure, that the biggest exchanges have not only a great reputation but high trade volumes and liquidity, so the trading spread is not as big as in some other types we will talk about in the next chapters. Some trading platforms such as Stormgain or XCOEX go even further in this and offer liquidity aggregation, a process that gathers buy and sell orders from different sources and, as a result, provides traders with the prices close to market average with minimal spread.
Customer support, various trading pairs, and fiat gateways are often offered by CEXes, and most of the time you can benefit from additional services such as staking, savings opportunities, or IEOs (Initial exchange offers). They also add services known from DeFi. Some of you might ask, what is DeFi in crypto or what is decentralized finance? In a simple way, those are decentralized instruments that you might know from the banking sector such as lending or borrowing of crypto, but without a middleman.
On the other hand, while using CEX, you aren’t the owner of the private keys, so there is still a slight chance that CEX could be hacked as it happened with Mt. Gox, HitBTC, or Coincheck. Some people feel uncomfortable sharing their private data in the KYC process as well, so this might be a barrier for a few people.
Centralized Cryptocurrency Exchange Features
KYC/AML IDENTIFICATION: We implements a KYC/AML to verify the buyer’s and seller’s identity to eliminate malicious activities and fake users. The identification tool is linked to the exchange platform to secure your wallets.
ORDER MATCHING ENGINE: We a centralized solutions provider. Our trade engine supports various orders, letting the users match the buy and sell orders more efficiently.
ESCROW MANAGEMENT CENTRALIZED EXCHANGE SOLUTIONS: We at Crypto Ape empowers the crypto exchanges via a centralized platform that conducts escrow management. It reduces the website development times, tracks secure protocols, and provides quality information with great accuracy.
SECURE WALLET CENTRALIZED EXCHANGE SERVICES: Our centralized exchange developers build secure exchange software with the latest FinTech industry standards, supporting multi-currencies and accepting deposits/withdrawals. The multi-currency wallet enables the users to keep the currency safe.
CENTRALIZED TRADING PLATFORM ADMIN PANEL: The next-level admin panel is easily customizable, giving the admin a complete control over trading and managing the traders’ progress through analytics, risk identification, alert options, etc.
LIQUIDITY MANAGEMENT: We “Crypto Ape” is the best centralized crypto exchange provider & our features include the art of managing liquidity by integrating the orderbook of intermediaries to display it on the users exchange platform. It increases the currency flow on the website.
Top Centralized Exchange
The following are the top centralized cryptocurrency exchanges, according to traffic, liquidity, and trading volumes.
- Huobi Global
- Coinbase (Pro)
Decentralized exchanges (DEX):
DEX is an alternative to CEX without a central point of failure, no company is in charge of the assets. In comparison with traditional CEX, the transactions and trades are automated by using smart contracts and decentralized applications.
This way is much more secure because there is no possibility of a security breach if the smart contract is well written ofcourse.
Because of the most advanced blockchain having the largest number of tokens (ERC-20 tokens) is Ethereum, most of DEXes operate using Ethereum and its smart contracts, most of them can’t even handle Bitcoin for trading. This might be upgraded by arriving on decentralized finances (DeFi) on an interoperable platform such as Polkadot and Cosmos. With their usage, the limits for trading will be much lower.
Because no company is responsible for the run of DEX, it’s harder for governments and regulators to shut them down. But the price for decentralization is on most DEXes low trading volume, small liquidity, lower speed, and poorer UI which makes them harder to use.
Some DEXes are focused merely on experienced users. You can’t contact customer support for help on DEX and they don’t provide a fiat-gateway as CEX does.
How a decentralized exchange work
DEXs are similar to their centralized counterparts in some ways but significantly different in others. Let’s first note that there are a few different types of decentralized exchanges available to users. The common theme among them is that orders are executed on-chain (with smart contracts) and that users do not sacrifice custody of their funds at any point.
Some work has been done on cross-chain DEXs, but the most popular ones revolve around assets on a single blockchain (such as Ethereum or Binance Chain).
On-chain order books
In some decentralized exchanges, everything is done on-chain. Every order (as well as alteration and cancellation) is written to the blockchain. This is arguably the most transparent approach, as you’re not trusting a third party to relay the orders to you, and there’s no way to obfuscate them.
Unfortunately, it’s also the most impractical. Since you’re asking every node on the network to record the order forever, you end up paying a fee. You need to wait until a miner adds your message to the blockchain, meaning the experience can be cumbersome, too.
Examples of on-chain order book models include the Stellar and Bitshares DEXs.
Off-chain order books
Off-chain order book DEXs are still decentralized in some regards, but they’re admittedly more centralized than the previous entry. Instead of every order being posted to the blockchain, they’re hosted somewhere.
You could have a centralized entity completely in charge of the order book. If that entity is malicious, then they could game the markets to an extent (i.e., by front running or misrepresenting orders). However, you would still benefit from non-custodial storage.
Implementations of off-chain order books include Binance DEX, IDEX, and EtherDelta.
Automated Market Makers (AMM)
This specifics of AMMs depend on the implementation — generally, they string together a bunch of smart contracts and offer clever incentives to ensure user participation.
The available AMM-based DEXs today tend to be relatively user-friendly, integrating with wallets like MetaMask or Trust Wallet. As with other forms of DEXs, though, an on-chain transaction must be made to settle trades.
Projects working on this front include aforementioned Uniswap and Kyber Network, both facilitating the trade of ERC-20 tokens.
Pros and cons of DEXs
Pros of DEXs
No KYC: KYC/AML (Know Your Customer and Anti-Money Laundering) compliance is the norm for many exchanges. For regulatory reasons, individuals must often submit identity documentation and proof of address.
No Counterparty Risk: The primary appeal of decentralized cryptocurrency exchanges is that they don’t hold customers’ funds. As such, even catastrophic breaches like the 2014 Mt. Gox hack won’t put users’ funds at risk or expose any sensitive personal information.
Unlisted tokens: Tokens that aren’t listed on centralized exchanges can still be traded freely on DEXs, provided there’s supply and demand.
Cons of DEXs
Usability: Realistically, DEXs aren’t nearly as user-friendly as traditional exchanges. Centralized platforms offer real-time trades that are unaffected by block times.
Trading volumes and liquidity: The volume traded on CEXs still dwarfs that of DEXs. Perhaps more importantly, CEXs tend to have greater liquidity, too.
DEXs are still relatively niche, so there isn’t always supply or demand for the crypto assets you wish to trade. You may not be able to find the trading pairs you want to use, and if you do, assets might not trade at a fair price.
Fees: Fees aren’t always higher on DEXs, but they can be, particularly when the network is congested or if you’re using an on-chain order book.
Top Decentralized Exchanges
Below are the highest-ranked decentralized cryptocurrency exchanges, according to traffic, liquidity, and trading volumes:
- Uniswap (V2)
- 0x Protocol
- Curve Finance
- 1inch Exchange
Hybrid Exchanges (HEX):
What is hybrid cryptocurrency exchange? Simply it’s the kind of cryptocurrency exchange which is taking advantage of each CEX and DEX. It is the combination of fast transaction speed you can find in centralized platforms and security assurance by still holding the private keys.
Hybrid crypto exchange types are a new generation of the crypto trading marketplace, but still “under development”. The most popular hybrid types are Nash exchange and Qurrex exchange.
Hybrid exchanges, as mentioned above, build on the strengths of both decentralised and centralised exchanges. In DEX, users have complete control over funds. For instance, they can either choose to keep a wallet or trade via smart contracts. A hybrid crypto exchange is a platform that provides users with access to their private keys and aims to solve the scalability issues of decentralised exchanges. One of the primary goals of HEXs was also to address the DEXs high trading fees. In HEX trading, there are no taker fees and gas fees.
CEX vs DEX vs HEX at a glance
Ease of use:
CEXs and HEXs score over DEXs in terms of ease of access and operations. DEXs usually have convoluted user interfaces and are hard to navigate, which can be intimidating for new users. CEXs have a very well-defined and easy-to-use user interface, which is welcoming for amateurs and new users.
Custody of funds:
CEX manages your crypto wallet, while you have absolute control over your funds in DEX and HEX.
CEXs offer the fastest processing speeds followed by HEXs. DEXs may suffer from some lags.
DEXs are hosted on decentralised servers which makes them less vulnerable to hacks. HEXs also provide benefits of decentralisation that CEXs lack.
With no single point-of-failure, it is nearly impossible to shut down or regulate DEXs. This can benefit users in countries with a ban on cryptocurrencies. This is also true to an extent for HEXs. CEXs, however, need to abide by the regulations of the country they are located in.
KYC that includes providing your identity proof is mandatory for most CEXs without which deposit/withdrawal of funds & trading is not allowed. DEXs require just an email address.
CEXs currently have the highest liquidity. HEXs are still in nascent stages, so it remains to be seen how they progress.
TOP CRYPTO BUSINESS IDEAS FOR 2022
- Cryptocurrency &Altcoin Development
- Cryptocurrency Exchange /Trading Startups
- Crypto Payment Gateway
- ICO – Initial Coin Offering
- STO – Security Token Offerings
- NFT Business
- Bitcoin Wallet Service Startups
- Bitcoin Forking Startups
- Cryptocurrency MLM Service for Startups
- Private Blockchain Implementation For Business
- Cryptocurrency &Altcoin Development:
Over recent years, cryptocurrency has been rapidly gained its market and make it easier for users to do a secure and fast transaction. So most of the startup to the large enterprise is interested in crypto coin development. A crypto coin designed to work as a medium using cryptography to secure transactions. Crypto coins are generally used in the same way as real-life coins. Crypto Ape offers newly and customized crypto coin development services from complete development to successful launch.
- Cryptocurrency Exchange Platform
In less than a second, a crypto trading platform permits the transaction and exchange of multiple cryptocurrencies from one user to another. They are not governed by a set of rules, so users may freely communicate information. The crypto trading platform’s success has been based on this. Blockchain technology provides a distributed ledger and the strongest security choices available, ensuring that your platform is extremely safe and encrypted.
- Crypto Payment Gateway
Many companies, like Walmart and Amazon, have embraced cryptocurrency payments by integrating a cryptocurrency payment gateway into their POS terminals and delivery check-ins. The cryptocurrency payment gateway industry is growing, and businesses need a trustworthy and dependable multi-cryptocurrency payment system to grow. What if you could provide them one-of-a-kind cryptocurrency payment gateway solutions at a reasonable price? Begin your cryptocurrency payment gateway business and establish yourself as a crypto entrepreneur.
- ICO – Initial Coin Offering
Initial coin offering (ICO) Development is one of the best ways for startups to raise initial capital for their crypto-based business opportunity. It has all the benefits of blockchain technology embedded into it. So it was borderless, trustless, and is quick. Launch your own successful ICO, from the best ICO development company with proven experience in ICO Development.
- STO – Security Token Offerings
STO – Security token offering that make your business more reliable and flexible with its prime attributes. These security tokens are blockchain powered crypto tokens that encloses tangible and tradable assets such as business shares, dividends, land, gold and so on, to raise fund from accredited investors all over the world.
- Non-Fungible Token Business
This is one of the hottest cryptocurrency business options for entrepreneurs and companies. By honouring digital antique collections and wild ideas, NFT has really turned the tables here, and now it’s time for the crazy folks to produce some magnificent digital art and earn money. It is ideal to build your own NFT marketplace since you will not only earn from transactions, but you’ll also be able to generate additional money from numerous source funnels.
- Bitcoin Wallet Service Startups
A Bitcoin wallet is a type of digital wallet used to send and receive Bitcoins. This is analogous to a physical wallet. However, instead of storing physical currency, the wallet stores the cryptographic information used to access Bitcoin addresses and send transactions.
- Cryptocurrency/ Bitcoin Forking:
Bitcoin Forking is the easiest way to create a new cryptocurrency. To create a new cryptocurrency like bitcoin one has to have certain skills and abilities in programming. Changing a couple of lines precisely in the bitcoin source code can give birth to a new crypto coin like bitcoin.
- Cryptocurrency MLM Service
In the current era, crypto-based MLM business is gaining more popularity and bringing more revenue for startups to large businesses that are all interested to start their MLM business with cryptocurrency.
- Private Blockchain Implementation For Business
A private blockchain is one of the popular types of blockchain technology at the moment. Basically, there are three types of blockchain technology – Public, Private, and Federated. Based on how each of their characteristics is, companies use them in their own solutions. If you use private blockchain applications in a solution where the public or federated system is necessary, then that solution won’t become successful. Thus, it’s really important to know what kind of private blockchain platforms you are using.
However the exchanges do not only have the trade revenue model associated with traders, but have its own business model within it. Starting your own Cryptocurrency Exchange is a very good Business strategy in the blockchain world where the revenue can be earned with the fee from the users for the transactions & it’s up to you to decide, which type of cryptocurrency exchange will solve the best for your needs. Having confusions in Choosing a best development team for the cryptocurrency exchange? You can have a free consultation with CryptoApe team for a better assistance.