What is a Crypto Exchange? What is a Broker? What's the Difference?

What's a crypto exchange? What's a broker? If you are interested in trading cryptocurrencies, you might have heard of two different ways to do it. If you haven’t, then listen up, because this is an important knowledge nugget.

Crypto platforms tend to operate in two different ways. One way is operating as a crypto broker, the other way is operating as an exchange.

But what are they? And how do they differ? And which one is better for what you want to do with your digital assets? And how do you know which is which? In this article, we will break it down for you. So read on!

What is a cryptocurrency exchange?

A crypto exchange is a website or an app that lets you trade cryptocurrencies with other users directly. A crypto exchange, such as CoinJar, Independent Reserve, or Binance Australia, provides a platform where buyers and sellers can exchange cryptocurrencies based on the current market prices. To use an exchange, you have to follow the trading rules of the platform.

There are two different types of exchanges: Decentralised and centralised.*

NB Where you see the following symbol “*“, please note the standard risk warning at the bottom of the article.

What is a centralised exchange?

A centralised crypto exchange is a website or an app that lets you buy and sell different kinds of digital assets, such as Bitcoin, Ethereum, XRP or even NFTs. You can also exchange one type of crypto for another, or use everyday money like GBP Sterling to buy crypto.

You need to create an account on the exchange and verify your identity before you can use it. The exchange also charges you some fees for using its services.

Some pros and cons of using a centralised crypto exchange are:

1. It is user friendly and has a lot of features, such as charts, news, and customer support.

2. It has a lot of cryptocurrency options, so you have a lot of choice when buying or selling cryptos.

3. A crypto key or password is a code that allows you to access and manage your crypto funds. It is like a lock that only you have the key to. When you buy or sell crypto, you need to enter your key or password to confirm the transaction.

If you forget your key or password when using a decentralised exchange, you may lose your crypto forever. However if you use a centralised exchange, there is a way to get access to your crypto back.

A centralised crypto acts more like a bank in some ways. You don’t have to store your private keys on your own device or wallet. The platform does it for you. You can reset your password if you forget it by contacting the customer support of the platform.

However there is a phrase in crypto: “Not your keys, not your coins”. This means that you have to trust the crypto exchange won’t go bankrupt or be hacked. But say if something happened to you, and your family needed to get access to your crypto. Then you could get access to funds on a centralised exchange.

4. It is not as private as a decentralised exchange, because the exchange knows who you are and what you do with your digital money. It can also share your information with the government or other parties if they ask for it.

5. You have to follow the rules of the exchange, like you would with normal money and a bank.

6. Crypto exchanges usually offer more advanced and innovative trading features and tools. You won’t need to know this as a beginner yet, but once you get more comfortable with crypto culture, you will be able to look into things like margin trading, futures, options, and staking.

7. Crypto exchanges, such as CoinJar also have social and educational aspects, such as social media forums, and learn sections where you can follow what interests you.

8. You have to follow rules. Before choosing a crypto exchange, you should learn the trading rules and processes of the platform.

9. You should also compare their fees and commissions with other exchanges and the broker prices. You should also fully understand the risks involved in trading cryptocurrencies, such as price volatility, hacks, and thefts.

While protection is improving as the industry matures, criminals will be criminals and are always looking for a way to scam people. For example - Even though online wallets are convenient, there is a risk that you may be a victim of a cyberattack.*

What is a decentralised exchange?

A decentralised crypto exchange is a way of trading different kinds of crypto, without using a website or an app that controls your money. Instead, you can trade directly with other people who can trade cryptos with you directly too. Some unique features of using a decentralised crypto exchange are:

1. DeFi platforms are not in line with the AML legislation under FCA, in that you are not required to share personal information and transactions are not transparent or monitored.

2. You can trade with anyone, anywhere, anytime. You don’t have to follow the rules or regulations of the exchange or the government, such as the FCA.

3. It is more difficult to use than a centalised exchange and has fewer features, such as charts, news, and customer support.

4. It has fewer cryptocurrencies, and fewer people using it, so you might not be able to swap with others if you are into more obscure cryptocurrencies.*

What is a crypto broker?

A crypto broker is someone who helps you buy or sell cryptocurrencies with GBP Sterling or other fiat currencies. A crypto broker can be a company, platform, or individual who acts as a middleman between you and the crypto market.

To use a broker, you have to pay them a fee or a premium for their service.

Features of using a crypto broker

Like crypto exchanges, using a crypto broker has some benefits and drawbacks for users too.

1. They tend to offer a wide range of digital money options, with sometimes hundreds of coins to choose from.

2. They may comply with local laws and regulations, and verify your identity to prevent fraud. However some of the exchanges they use to process the transactions may not comply, and it is hard to know more information about this as they don’t tend to disclose who they use.

3. Brokers tend to charge relatively uncompetitive trading fees or spreads, which can add up if you trade frequently or in large amounts, seeing as they use exchanges to process the trades.

4. Because brokers use exchanges to buy crypto, you have to trust that the broker knows what they are doing and that they are using reputable exchanges.

So you want to be sure you trust that the broker has good alliances with sound exchanges.

Do I need a broker to buy crypto?

No, you do not need a broker to buy crypto. You can buy crypto directly from a crypto exchange. But you can also buy crypto from a crypto broker, which is an intermediary that helps you buy or sell cryptocurrencies at a fixed price, usually using fiat currencies or other cryptocurrencies.

However, the broker will use crypto exchanges that you didn’t choose yourself, and some of these could be overseas.

On the other hand, if you use a crypto exchange, your activity is not “farmed out” to third parties, the transaction is done on the crypto exchange that you have chosen to use. *

Conclusion: What is a crypto exchange?

A crypto exchange and a crypto broker are two ways of buying and selling cryptocurrencies. Both crypto exchanges and brokers have their own advantages and disadvantages, depending on the user’s jurisdiction, needs, preferences, and goals.

Glossary of terms

Bitcoin: The first and most popular cryptocurrency, created by a mysterious person or group called Satoshi Nakamoto in 2009. Bitcoin has a limited supply of 21 million coins.

Crypto: A short term for cryptocurrency, which is a type of digital money.

Crypto broker: A platform or service that allows users to buy and sell cryptocurrencies using fiat currencies or other cryptocurrencies. Crypto brokers usually charge fees for their services and may require users to verify their identity and comply with regulations.

Crypto exchanges: Platforms or services that allow users to trade cryptocurrencies. Crypto exchanges can be centralised or decentralised, depending on whether they are controlled by a single entity or a network of peers.

Cryptocurrency: A type of digital money.

Cryptocurrency broker: A type of crypto broker or crypto platform that specialises in buying and selling cryptocurrencies, usually for fiat currencies. Cryptocurrency brokers can act as intermediaries between buyers and sellers. However they use crypto exchanges of their choice, and some of these could be overseas.

Cryptocurrency exchanges: A type of crypto exchange that specialises in trading cryptocurrencies, usually for other cryptocurrencies.

Cryptocurrencies: The plural form of cryptocurrency, which is a type of digital money.

Cryptocurrency market: A cryptocurrency market is a place where people can buy, sell, trade, or exchange different types of cryptocurrencies, such as Bitcoin, Ethereum, XRP, and more. Cryptocurrency markets are also known as crypto exchanges.

Fiat currencies: The official currencies of countries or regions, such as the US dollar, the euro, GBP sterling or the Japanese Yen. Fiat currencies are issued and regulated by governments and central banks, and are usually backed by the trust and confidence of the people who use them.

Intermediary: A person or entity that acts as a middleman between two or more parties in a transaction or a communication.