There are only 3 Types of Crypto Exchanges
When you think Crypto, a few different topics come to mind. Investment, Trading, Decentralisation & Future of Money. What all these things have in common is that at some point in time everyone needs to use some sort of exchange to move funds from the Old World FIAT Currency to the New World Cryptocurrency. Exchanges come in all shapes and sizes but only fall into three very distinct categories.
Which is best for you???
What type of exchange to use for you is a total choice of preference irrespective of your crypto knowledge and experience. Remember that each exchange will have a certain purpose or use weather to onboard FIAT currencies like GBP Sterling, US Dollars or EURO’s or trade Cryptocurrencies against one another.
Some Exchanges will claim to do everything and be 100% secure. Some of these exchanges tend to come and go very quickly and never establish themselves as an authority by trying to do “EVERYTHING” in the Cryptocurrency Eco System.
Below are the types of exchanges and what they do best and how to avoid wasting time and more importantly your money.
Order Form Based
Some “exchanges” are really brokers in disguised that have no discernible Software, Intellectual Property, Security or value adding features. These types of brokers are in fact simply taking deposits from users, adding a markup and purchasing the digital asset from another Trading Exchange somewhere else. These middlemen businesses are everywhere. Any “Exchange” following the below criteria are classified as Order Form Based Brokers.
- Signup to the website
- Sometimes do a “Know Your Client” (KYC) Check and provide documents
- Fill out a form supplying your order information and maximum spend.
- Supply a wallet delivery address
- Deposit funds
Brokerage Exchange Based (Usually FIAT Gateways)
Fiat gateway exchanges are sometimes classified as brokers and not exchanges depending on their volume and features available. A FIAT Gateway is extremely difficult to setup and run and as such you’ll only see a handful of them in certain jurisdictions. Traditional banking is key to getting old world FIAT Funds such as GBP Sterling, US Dollars and EURO’s into the Crypto eco-system using these exchanges.
FIAT Gateway brokers and exchanges tend to have larger teams, transparent fee structures, bespoke software and Intellectual Property as well as support for their clients.
Some of these exchanges and brokers fall under financial regulation in some countries but operate freely in others. Its worth doing your research here to find out weather or not the FIAT Gateway you are using is regulated or even needs to be in your given country. For example, in the UK as of Feb 2019 there is no regulation over crypto fiat exchanges. However, firms are able to secure much more favourable banking deals and partnerships but registering and working alongside regulators to build bespoke and specialised businesses in the crypto space.
Trading Platform Based (Crypto — Crypto)
Trading platforms in the crypto space are now a dime a dozen. Everyday there is a new crypto-crypto exchange popping up in every country in the world. There are two basic types of exchanges when it comes to crypto — crypto, centralised and decentralised.
Centralised exchanges are built on a central system where, when you deposit and trade your cryptocurrency, the private key is held by the business. If this business become insolvent, hacked, or run bad business practises, your funds are at risk. Centralised exchanges tend to perform faster in their operation due to their dedicated hardware and teams running the infrastructure. Centralised exchanges usually also have higher traded volume or “liquidity” to ensure that when you place an order on that your order will be filed.
Decentralised exchanges (DEX’s) are operated by the combination of the community surrounding the particular blockchain that the decentralised exchange runs on. The bonus is that the user is control of their wallet keys at all times and funds are never sent to another user or businesses wallet unless a filled trade order is completed. All changes and upgrades are carried out when 51% of a vote or “consensus” is reached by the community. Decentralised exchanges tend to be a bit clunkier and slower than their centralised counterparts with less liquidity. But, their security is usually much higher since the user is in control of their wallet keys at all times and no-one can individually cheat the system to benefit.
Trading Platform with FIAT Pairs (Fiat — Crypto)
The newest and probably most complex exchanges now offer both FIAT Currency Trading as well as Crypto Trading. These exchanges are usually run by very large businesses with a plethora of services that compliment and enhance the trading experience for their clients and users. The larger of these exchanges often offer lending and borrowing services, margin and leverage, advanced trading features as well as white label services for small exchanges.
As more and more exchanges and services connecting the old world to the new world launch and become more integrated, the Cryptocurrency space moves closer and closer to mass adoption. Weather you are a new time user, the savvy investor, the crypto-maximalist, the institutional investor or a business looking to gain access to more clients, 2019 is an amazing time to be involved in the cryptocurrency and blockchain space.
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