A digital currency exchange is a place to exchange digital currencies together or exchange them for fiat money. For several years, a lot of capital has entered the digital currency market, and it is natural that the number of exchanges in this field is increasing day by day. With the advancement of technology, exchanges also advance and offer other facilities to users in addition to buying and selling.
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At first, there were only centralized exchanges, but with the use of blockchain technology and the creation of decentralized exchanges, transactions in this area entered a new phase. Now it is time for smart contracts, and next it will be the turn of hybrid exchanges.
In this article, we want to talk about the types of exchanges in the digital currency market and learn more about centralized, decentralized and hybrid exchanges and the capabilities of each.
Centralized Exchanges ( CEXs )
“Centralized Exchanges” (Centralized Exchanges) are platforms that perform the entire process of buying and selling digital currencies for users like an interface. They register users’ orders, execute transactions and finally store the desired asset in the users’ own wallet.
Some famous platforms such as “Binance” offer facilities such as “Spot”, “Margin”, “Futures” and “Option” transactions to users. Due to such facilities, this exchange currently has the largest volume of liquidity and transactions among all exchanges in the world. Other major exchanges in the world include Coinbase, Kraken, Bitfinex, and Huobi.
Regarding the advantages of a centralized exchange, it can be said that it is generally easy to use and the exchange performs all transaction steps for the user. Most of them have a simple and beautiful user interface and also have a 24-hour support system and respond to users’ problems. The volume of transactions and liquidity in centralized exchanges is high. In addition to trading crypto with crypto, you can also trade crypto with fiat currency in a centralized exchange.
Regarding the weaknesses of centralized exchanges, we must say that they are highly sought after by hackers and the risk of asset theft in a centralized exchange is very high. Because they keep users’ money in one or more “Hot Wallets” and if the private keys of these wallets are exposed, all funds will be lost.
The next item is legislative problems; This means that the government can prevent the activity of a centralized exchange like a private company, and if the exchange is suddenly closed, it will cause a lot of trouble for its users. The next thing is the fees in centralized exchanges. Basically, the fees are a small percentage of the transaction volume; As a result, large fees have to be paid for large transactions.
Despite all these issues, currently the largest number of users and, as a result, the largest liquidity of the crypto market are observed in centralized exchanges.