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So what is the best crypto exchange? That’s the middle-dollar question. Or should we say, the million-Bitcoin question! It really depends on what you want to do on a crypto exchange.
The most common (and easy-to-use) type of exchange, CEXs, functions similarly to conventional stock market exchanges. They are governed by a central company, and users trust the exchange to manage their funds and carry out their trades.
These are great for beginners or for those who want to use the most popular method to buy and sell crypto. But you’ll have to play by the rules, which include handing over your ID and proving who you are.
DEXs, on the other hand, operate on a decentralized network and do not rely on a central authority to hold funds. Instead, trades are conducted directly between users using smart contracts. This is an agreement between the buyer and seller that is coded into the transaction.
DEXs are great if you don’t want to prove who you are, and just want to trade with like-minded peers. But, DEXs tend to be way more complex to use and tend to be less user-friendly. Users need to be at a higher level of knowledge to interact with them.
Additionally, DEXs tend to have less crypto held on the exchange for users to buy and sell (this is called liquidity) so sometimes trades can take longer to execute, and because of this, fees can sometimes be higher.
But if you are big on privacy and anonymity you may prefer a DEX. Users can trade directly from their own wallets without using a third party or proving who they are.
Brokers usually charge higher fees and spreads to cover their expenses, including payments to outside exchanges for executing trades. They typically do not hold the cryptocurrency being traded, but rather keep it on outside exchanges.
Customers have to just trust that these brokers have made good alliances. For example, an exchange called Digital Surge lost $33M in customer funds in the collapse of FTX, a cryptocurrency exchange that went bankrupt in 2022.
When choosing a platform, it is also important to consider the regulatory aspects. This means looking for platforms that comply with regulations and are registered with local authorities. This ensures that you are protected against fraud.
You could also consider factors like transaction fees, ease of use, and available cryptocurrencies. Not every exchange has a wide variety of cryptocurrencies.
Exchanges and brokers can differ in how they handle the buying and selling of cryptocurrencies.
The process of signing up for a CEX or a broker is typically the same, requiring the user to provide personal information, such as full name, email address, phone number, and a secure password. And of course, there’s photo ID required.
Brokers will also typically require their users to conduct a Know Your Customer (KYC) verification process when signing up.
Depending on the exchange or broker, a user can deposit money into their account via several methods, including credit cards, bank transfers, or cryptocurrency transfers.
CoinJar has a crypto debit card that lets users spend their crypto at any Mastercard-accepted merchants. Brokers don’t tend to have this feature. CoinJar also supports more deposit methods than most brokers.
To trade on an exchange, you usually follow a simple process of selecting the cryptocurrency asset you wish to trade, and choosing how much you want to trade. You may also set automatic buy and sell orders to avoid the need for constant monitoring of the exchange platform.
Since brokers often store cryptocurrencies on exchanges, they may charge higher fees and spreads when facilitating trades on third-party exchanges, as they need to cover their expenses, which include payments to the exchanges for executing trades.
Brokers may be a less secure option as they rely on other centralized organisations to conduct trades and don’t generally tell their customers which exchanges they use, and where their cryptocurrency is being stored.
Choosing a crypto exchange is actually easy if you know what you want to do with crypto.
If you are new to crypto and want to go with an exchange that is registered with local authorities and has good security and fraud prevention, then a centralized exchange is probably right for you.
You can factor into this that some exchanges like CoinJar have been around for a really long time and get good reviews on rating sites such as Trustpilot.
If you have a higher level of knowledge and you want to trade crypto anonymously, then perhaps a decentralized exchange is right for you.
Choosing a broker means you have access to a greater range of cryptocurrencies, as they have partnerships with brokers who offer a vast array of cryptos. However, this can mean that you have to trust their judgment with your crypto.
As always, do your own research and choose an exchange or broker with good reviews and an established history before trading cryptocurrencies.
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