The Best Crypto Exchanges
Exchanges play a critical role in the cryptocurrency space and provide an onramp and offramp into the cryptocurrency ecosystem. These platforms also provide us with simple, easy-to-use cryptocurrency wallets with a number of capabilities. Can you imagine if we had to interact with a node ourselves to create transactions on the blockchain? If there were no exchanges, we wouldn’t only have to interact with the raw blockchain ourselves, but we also wouldn’t have an easy way to buy and sell cryptocurrencies. In this article, we will take a look at some of the best crypto exchanges currently in the market.
Cryptocurrency exchanges can be broken up into two categories. These categories are centralized and decentralized. Let’s take a look at what each one is.
What is a Centralized Exchange?
A centralized exchange is a platform where you can buy or sell cryptocurrency through a third party that will monitor the transaction and secure the assets on behalf of the buyer and the seller. These transactions are not tracked on a blockchain. Centralized exchange platforms require you to submit your personal information for verification. If you’re a company, you’ll have to provide your corporate information to the exchange so that it can verify your account.
Centralized exchanges incentivize their users to provide them as much information about them as possible by increasing the users’ quotas each time more information is submitted. The nice thing about centralized exchanges is that if there are any technical issues, or if users need help with their account on the exchange, then they can just contact the platform’s support team for assistance.
Most centralized cryptocurrency exchanges provide their users with flat pairs at stable prices. Centralized exchanges are widely popular among cryptocurrency users and it is fairly easy to find a centralized exchange for every type of cryptocurrency investor. Some of the most popular centralized cryptocurrency exchanges are Coinbase and Binance. We will take a look at these two exchanges a bit later on in the article.
Now that we have taken a look at what a centralized exchange is, let’s take a look at what a decentralized exchange is.
What is a Decentralized Exchange?
In a decentralized cryptocurrency exchange, also known as a DEX in the cryptocurrency space, the client will bring his/her cryptocurrency to the gate of the decentralized exchange. Once the funds are in the gate, the client will receive proxy tokens. The amount of proxy tokens is either a one-to-one relationship or depends on the exchange rate at the time of the exchange between the funds brought to the gate and the proxy token. With these proxy tokens, the client can transact on the exchange’s blockchain. The cryptocurrency that the client brings to the gate serves as collateral for the proxy tokens.
On the decentralized exchange, you can place an order to sell your current tokens for any other token that is available on the exchange. Your order, the order’s matching process, and all of the processes that happen thereafter are stored on the exchange’s blockchain. This is one of the main benefits of decentralized exchanges. After you’ve made an exchange with your proxy tokens and have received another type of proxy token, then you can also convert the proxy token you received into real cryptocurrency.
Centralized Exchange vs Decentralized Exchange
Besides all of the transactions being stored on a decentralized exchange’s blockchain, some other differences between a centralized and decentralized exchange are the level of control that the client has on each type of platform, the risk of the platform getting hacked, and the amount of liquidity available on the exchange. There are other differences as well, but these are the main differences between decentralized and centralized exchanges.
Let’s take a brief look at the main differences between the two.
In a centralized exchange, the majority of control belongs to the exchange platform. With a decentralized exchange, the user has most of the control.
Risk of Getting Hacked
Since a decentralized exchange does not run on just a handful of company servers, the risk of a decentralized exchange getting hacked is a lot lower than that of a centralized exchange platform.
Centralized exchanges are a lot more popular than decentralized exchanges. As a result, the amount of liquidity on centralized exchanges is a lot more than on decentralized exchanges because there are a lot more people trading on a centralized exchange.
As mentioned, these are just the main differences between centralized and decentralized exchanges. Let’s now move on to what factors make up a good exchange.
Main Factors That Make Up a Good Exchange
The major metrics that can be used to determine if an exchange is good or not are the exchange’s daily trading volume, its ease of use, and the number of available cryptocurrency pairs.
Daily Trading Volume
Daily trading volume is important, especially if you’re looking to trade a fairly large amount of cryptocurrency at a time. This is because exchanges with a high daily trading volume have larger amounts of liquidity than exchanges with lower volumes. Higher liquidity is a good thing because it means that you can exchange large amounts of cryptocurrency without moving the listing price of that cryptocurrency on the exchange.
Ease of Use
Cryptocurrency is complex enough for most people, there is no need for an exchange to be complicated as well. Centralized exchanges are more user friendly than decentralized exchanges. This is because the majority of the complex work is done by the service providers in centralized exchanges, whereas a user has to do most of the dirty work on a decentralized exchange. It is recommended that cryptocurrency investors make use of centralized exchanges if they are beginners, just until they learn the ropes of cryptocurrency trading.
Available Cryptocurrency Pairs
An exchange that has a wide array of options of cryptocurrency for a client to choose from is important. This is because it contributes to the ease of use for a client when trading cryptocurrency as they won’t necessarily have to use more than one platform to get their hands on the cryptocurrency that they desire. Furthermore, having more options on a single exchange will also contribute to the exchange’s popularity, which will in turn increase its liquidity as more people will trade on a platform that has more variety than exchanges that don’t.
So, there you have it! These are the main metrics to look at when looking for the best crypto exchanges. Let’s now take a look at the top five exchanges (in our opinion).
Founded in 2017, Binance is the largest cryptocurrency exchange in terms of the daily trading volume. Binance supports trading for over 40 pairs of cryptocurrency as well as provides its clients the ability to take part in popular DeFi protocols that can generate a yield. Everything that a cryptocurrency investor needs can be found all in one place!
Similar to Binance, KuCoin is a centralized exchange platform. KuCoin is in the top ten list of cryptocurrency exchanges in terms of daily trading volume. Launched in September 2017, KuCoin has grown into one of the most popular cryptocurrency exchanges and already has over 8 million registered users across 207 countries and regions from across the globe. KuCoin also offers its users access to popular DeFi protocols and supports a large list of cryptocurrency pairs.
One of the most popular exchange platforms in the cryptocurrency space, Coinbase is a centralized exchange platform that has a good track record in the industry in terms of reputation, security, and ease of use. Coinbase also has a good selection of cryptocurrency pairs to choose from and protects their clients from scam cryptocurrencies by conducting audit reports prior to a project getting listed on their exchange.
PancakeSwap is a decentralized exchange and allows investors to swap BEP-20 tokens. These are tokens that are built on top of the Binance Smart Chain and don’t have their own blockchain. PancakeSwap is also built on top of Binance Smart Chain, which gives it a number of advantages compared to if it was built on the Ethereum blockchain.
SushiSwap is a decentralized exchange platform built on top of the Ethereum blockchain. SushiSwap incentivizes its users to contribute to the operation of the platform by locking up funds into smart contracts for a return yield. These funds are then used as the liquidity for the decentralized exchange. Decisions relating to the SushiSwap software are made by holders of its native cryptocurrency, SUSHI.
The Best Crypto Exchanges: Conclusion
A cryptocurrency exchange plays a vital role in the cryptocurrency space and lets anyone easily onramp and offramp into and out of the cryptocurrency space. Cryptocurrency exchanges can be divided into two categories: decentralized and centralized. Centralized exchanges rely on third-party providers to facilitate trades, while decentralized exchanges rely on blockchain technology and smart contracts for exchange transactions.
The main metrics to look out for when identifying the best crypto exchanges are the exchange’s daily trading volume, ease of use, and the amount of cryptocurrencies available to trade on the platform. Some of the most popular exchanges are Binance, Coinbase, KuCoin, PancakeSwap, and SushiSwap.