Back in 2008, when Bitcoin came into being, the only way to get hands on one was to mine it. Alternatively, one could send it to you, but that was a very tightly knit closed group. So how does one drive the mass adoption of an asset? Yes, exchanges! An exchange is marketplace for commodities, securities, stocks and cryptos.
Think of it like Amazon with a subtle change. Instead of people listing their assets (stocks, crypto etc.) they are trading in real time. Say you go and say, hey! I plan to sell my BTC at 45K. Comes along someone else who wants to buy it. Hence the trade gets executed. That is pretty much how things execute in traditional finance. Crypto? Well, things are a tad bit different here. That is what we plan to discuss in today’s post. We would also talk about the top 5 crypto exchanges out there. Let us get started.
Exchanges in Crypto:
Exchanges in crypto are in principal similar to the exchanges in stock market. However, they differ in terms of on-chain activity. Don’t worry. We’ll unfold that term in a while. For now, let us understand that cryptoverse has two different types of exchanges: Centralized and Decentralized exchanges. Let us talk about them briefly.
Centralized exchanges or CEX, as the name suggests are run by a central authority. People come and list their buy/sell orders in an orderbook. As soon as orders match, they get executed.
This centralized authority acts as an escrow for all transactions happening between traders.
Here comes the twist. While all of us think that when we purchase crypto, it is happening on a Blockchain, the truth is, it is not true for centralized exchanges. Yes.
Let us unfold it further. Say you have a bank account in Standard Chartered Bank. You wish to move $500 from your account to your friend’s account (same bank). When you do that transaction, there is no physical movement of money involved. It is simply a debit entry in your account and credit in his. Easy!
That is exactly what is happening on Centralized exchanges. You are not purchasing crypto off a Blockchain. These exchanges already have reserves to serve your orders.
Another key difference between centralized and decentralized exchanges is the fact that CEXs are KYC compliant. It is not possible to trade on one without KYC.
And because KYC is involved here, you can also buy crypto using your native fiat currency like USD, EUR, AED, INR etc.
Decentralized Exchanges or DEXs are on the other side of the spectrum. This time around, you are actually doing a Blockchain transaction while buying/selling your digital assets. If you have ever tried trading on a Decentralized exchange, you would see signing off transactions on your wallet (Metamask, Trust wallet etc.). There might be a gas fee involved as well.
For getting into a decentralized exchange, you need to transfer already purchased assets from a centralized exchange. It is very difficult to purchase crypto through fiat on these exchanges.
Similarly, to liquidate your assets and get fiat in return, you might have to go back to a centralized exchange.
But there is no centralized escrow to match your orders here. So how does it work eh? Introducing: Automated Market Makers or AMMs.
Examples of centralized exchanges are Binance, Gemini, Coinbase etc.
Automated Market Maker:
In a decentralized exchange, you are not trading with another trader. Rather, there is an algorithm involved here. Multiple people like you and me come together and deposit funds in asset pairs. (eg. USDT/ETH). This collation of funds is called the liquidity pool and the people providing these funds are called liquidity providers. Then a random trader would come by and swap them. Either they would deposit ETH to get USDT or vice versa. The price of each asset is decided based on the amount of asset remaining in the pool.
Why Centralized Exchanges First?
Ready to trade? In this blogpost we would talk about top 5 centralized exchanges. There is a reason we want to start with centralized exchanges first.
A. Ease of Usage:
First of all centralized exchanges are extremely user friendly. As a matter of fact, if you have ever trade on a stock market exchange, CEX would be extremely familiar to you. Therefore, if you are starting out your journey in the crypto investment, it is better to start off with a centralized exchange first.
B. Good UX:
The user experience is also great when it comes to centralized exchanges. There is no signing of transactions, gas fees involved in centralized exchanges.
C. Perfect for Trading:
If you are trader and do not plan to HODL, it is better that you use centralized exchanges. With no gas fee and all trading tools available at your disposal, CEX are a place to be.
Top 5 Crypto Exchanges:
Let us start with our list of top 5 crypto exchanges out there:
Binance has been an extremely valuable player in the crypto industry. It has evolved into a full blown ecosystem now. Not only it is a centralized exchange but also a token (BNB) and a Blockchain.
Binance has currently 500+ cryptocurrencies listed on its platform. It also enables both spot and futures trading for its users.
It does not end here. Binance has also made provisions to provide exposure to its users to earn crypto as interest on their holdings. This is done through stake/deposit and earn programs that come under the ‘Binance Earn‘ section.
Apart from that Binance has also enabled bridges with various crypto exchanges where transfers between the two exchanges can be made for free.
Binance also offers various APIs for its developer community to extract the price feeds, portfolio tracking or using bots for trading.
Coinbase is a listed entity on the New York Stock Exchange. The exchange debuted on the stock market seeking a gargantuan $1B valuation. And guess what? Markets just welcomed them wholeheartedly.
With huge success of Coinbase, it has become the most regulated way of entering the crypto market out there. There ahs been a special focus on listing good projects only on the exchange. As a result only 70 cryptocurrencies have made it through this exchange.
Because Coinbase took a web 2 route of raising money, it is often touted as the gateway of entry into the crypto world. A lot of their actions are under the radar of market watchdog, so it is safe to assume that crypto is a relatively safe business with Coinbase.
Coinbase also has a superhit learn and earn program as well. This is a great opportunity to polish your understanding of crypto and earning on the side.
C. FTX Exchange:
FTX Exchange is a leading centralized cryptocurrency exchange specializing in derivatives and leveraged products. Founded in 2018 by MIT graduate and former Jane Street Capital international exchange-traded funds trader Sam Bankman-Fried, FTX offers a range of trading products, including derivatives, options, volatility products, and leveraged tokens.
It also provides spot markets in over 100 cryptocurrency trading pairs such as BTC/USDT, ETH/USDT, XRP/USDT, and its native token FTT/USDT.
With about 65+ cryptocurrencies listed on the platform, Kraken is a centralized exchange that allows you to start your crypto journey with as low as $10.
There is a specific focus to onboard people on their crypto journey. Kraken features something called ‘crypto guides‘. Their learning resource center will help new users about basics of trading cryptocurrencies and the new age world of Finance and money.
E. Huobi Global:
Huobi is a global exchange which allows its users to take leverage up to 5X for spot trading. There is a bonus involved to sign up for Huobi. There are a total of $70 up for grabs. The process is rather simple:
- You get $10 to sign up
- You get $10 to deposit $10 within a couple of days of signing up.
- Then you can get $10 if you trade worth $10 or more.
- If you manage to trade >$3000 within next 2 days, you get $40.
Let’s Kickstart your Crypto Journey:
Well, not so soon. In fact, we put together a guide to check if you are worthy of this journey. Here’s a complete guide to check if you should be getting into cryptocurrency or not.
Until then, hit me up with any questions. I can talk about this realm even in the middle of my sleep.
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Until next time..
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