For anyone looking to get started as a crypto trader, cryptocurrency exchange platforms offer one of the best venues for buying and selling cryptocurrency.
As the number of cryptocurrencies on offer continues to grow, most crypto exchanges have grown accustomed to offering users a variety of coins, tokens, or altcoins. These digital assets are also available for trading in other cryptocurrencies like Bitcoin and Ethereum.
However, with so many exchanges available, it can be daunting trying to figure out which ones best suit your needs.
How centralized crypto exchanges work
It is very easy to purchase your cryptocurrency once your money has been deposited on a CeX. The CeX usually comes with a built-in crypto wallet that you can use to store your cryptocurrencies. You can also withdraw your crypto assets to another wallet.
Each centralized exchange has a unique internal architecture. However, most exchanges have order books that match the buy and sell orders.
The order book of A CeX lists all orders (buy or sell) made by users who want to trade cryptocurrencies on the exchange. Prices range from the lowest, best bid, highest, and most expensive.
The platform operators will match orders and provide liquidity to enable efficient trade execution and the highest price.
How decentralized crypto exchanges work
Although decentralized exchanges can be very easy to use, there are some learning curves. These types of exchanges allow you to buy cryptocurrencies from other users with nothing but the blockchain as the intermediary.
DeXs are great for people who want to exchange cryptocurrencies without having to go through a third party and trusting a central entity with the safety of their funds.
There are two categories of decentralized changes: order-book-based decentralized exchanges and automated market-making DeXs.
Order-book-based decentralized exchanges operate in the same way as centralized exchanges in that they list all of their orders on an order book with prices ranging from best asking prices to the best bids. The difference is that they deploy a decentralized framework to match and settle transactions. Order books are not used by automated market-making DeXs. Smart contracts are used to match and settle orders between users' wallets and smart contracts. AMM DeXs can also source liquidity from platform users.
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