Many new players in the crypto industry look for ways they can participate by buying various crypto assets. One easy way for new players to buy crypto assets is on exchanges. There are two types of exchanges namely centralized exchanges or CEX and decentralized exchanges or DEX. A crypto exchange is a platform where you can freely sell and buy crypto assets. The exchanges we will be discussing in this article are centralized exchanges.
Centralized exchanges such as BitQT create a meeting point for sellers “makers” and buyers “takers” to meet and exchange crypto assets for fiat. These exchanges maintain order books that enable them to keep track of all buy and sell orders on the platform. There are various things to keep in mind when you want to use centralized exchanges and some of these include:
Crypto wallets and exchanges are vastly different and so different things. The exchange allows users to sell and buy crypto assets while a wallet is a digital safe where you can keep your crypto assets. Although some exchanges provide crypto wallets for their users (for a fee) the two are not to be confused.
For transactions to occur on an exchange, an order has to be placed in the order book and matched by another trader on the other end of the trade. Makers and takers use exchanges as a meeting point for transactions to occur. Once transactions have occurred on the exchange, both parties can decide to leave their crypto on the exchange or send it to private wallets.
Exchanges charge various fees for different services while you use the service. They charge for deposits, withdrawals, and the provision of wallets for their users. These fees vary depending on the exchange as some exchanges waive some fees to attract users.
In the following section, we will take an insect look at how exchanges work and how they facilitate buy crypto.
How Centralized Exchanges Work
To use an exchange you either deposit fiat currency in exchange for stable coins (coins pegged to fiat value) or you deposit crypto assets unto the platform. Having your assets on the crypto exchange makes it easier for you to make transactions swiftly because all transactions do not happen on the blockchain rather they happen in the controlled space of the exchange. You lose the private keys to the funds you deposit which therefore means that you are trusting the exchange to sign off transactions on your behalf.
- Centralized exchanges have high trading volumes. These exchanges account for a high percentage of trading in crypto today.
- They allow fast and easy exchange of crypto exchanges as they bypass the sometimes slow blockchain.
- There is high liquidity on centralized exchanges therefore you can be sure your order will get filled on time. This is useful when you want to carry out transactions quickly.
- You lose custody of your coins when you place them on an exchange because you lose control of your private keys.
- Some exchanges have been accused of price manipulation and other anti-market techniques such as fake market volumes and insider trading.
- Centralized exchanges are usually targeted by hackers because they hold a large number of assets. This makes them vulnerable and you could lose your hard earned crypto if the platform gets hacked successfully.
Centralized exchanges facilitate transactions between buyers and sellers and make it possible for users to sell and buy crypto. It is important that you use only trustworthy exchanges to ensure that your crypto is in safe hands.