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What are cryptocurrency exchanges?

Cryptocurrency exchanges are one of the main pillars of this market, and the way investors can invest and use their cryptocurrencies. We will review all the information you need to know about the different exchanges, which one is the best, different alternatives and what aspects to take into account to avoid unreliable platforms or platforms that can disappear with your funds in it.

If you have doubts about which Exchange you should use, whether you are new or with some knowledge in the world of cryptocurrencies, I recommend you to stay until the end to know all those aspects that are relevant.

We have been able to see in these years, more than one news in relation to owners of exchanges or cryptocurrency platforms that have disappeared with the money of investors or investors could not withdraw their funds, therefore, it is very important to always invest and have your money in reliable platforms and that is what we will see below.

Centralized

The most used exchanges or cryptocurrency exchanges are the centralized ones, which depend on a company behind. This is because they are much easier for users to use and it is the way for many people to get started in the world of cryptocurrencies.  Also, they mostly allow you to deposit and withdraw funds to your bank account or card with really low fees. Which makes it easier for new users to use and with less risk.

Also, these platforms mostly have very low commissions to buy and sell cryptocurrencies, and different functionalities related to the world of cryptocurrencies.

Below, I leave you with the reviews of the main platforms and some of the ones I particularly use, if you are interested in a particular platform and want to know more in detail. Also, if you are looking for information about a platform and you don’t find it below, I recommend you to look on our website, because it is very possible that you will find a review about the platform. Most of the exchanges are quite complete, but you can also find some like bitvavo much simpler to use, but with less options.

How they work

The exchanges or cryptocurrency exchanges work with an account linked to an email or cell phone, where they allow you to buy and sell cryptocurrencies among those listed on their platform. The exchanges have a company behind them, which decides aspects such as transaction fees, how much it costs to withdraw cryptocurrencies, or the different options offered by the exchanges.

Some exchanges allow you to deposit your currency with your credit card or bank transfer to buy the cryptocurrency you want and is in the exchange, and in others, you can only use cryptocurrencies. So previously you will have to use another method to buy cryptocurrencies and send them to that platform.

Exchanges have liquidity of cryptocurrencies, which allows users to buy and sell at the same price found on other exchanges. In addition to buying and selling, platforms have been creating more functionalities for their users with cryptocurrencies, such as staking, mining or even buying and selling NFT’s within the Exchange itself.

Best options

Let’s see the best options from my point of view, if you want to go directly to the best platforms that exist. Keep in mind that there may be better platforms or that are also good and are not found here.

Bitvavo: If you are looking for a simple Exchange, with euro deposits and located in Europe, bitvavo is one of the best platforms for its simplicity. Although it does not have as many cryptocurrencies as other platforms, and the commissions are somewhat higher, if you are looking for simplicity and security, it is one of the best exchanges for it.

Binance: The world’s No. 1 and most used exchange. There is not much to say about Binance, as it has many cryptocurrencies, very low commissions, and many other interesting features. For some reason it is the most used platform in the world to buy and sell cryptocurrencies.

KuCoin: An Exchange that has many cryptocurrencies that sometimes you do not find in Binance, and very similar aspects to the Exchange nÂș1. My recommendation and the use I give to kucoin, is for cryptocurrencies that are not found in Binance, and if you can buy in KuCoin. And also, if you find better annual % staking in KuCoin than Binance in some cryptocurrencies.

Gate.io: Finally, gate.io is the exchange with more cryptocurrencies listed. Although it is more complex to use if you are new, if you are one of these people who want to buy the new cryptocurrencies that are just coming out, the first place where you can find them is in this exchange.

As we have mentioned, these are platforms that I personally use and that are good and reliable. However, you can also find other exchanges that are as good or similar to these platforms and we have not named them.

Risks and aspects to consider

Centralized exchanges are very useful, especially when you start because of their simplicity. Even so, there are risks and aspects that are important to know. Although first let’s see what aspects you should consider and I like to look at in an Exchange before using it and placing money in it. These aspects are:

Security: Exchange hacks have happened several times, so using a secure platform is essential to avoid losing your cryptocurrencies. Usually the most used platforms and with more users usually have high levels of security, although there are pages where you can check the security levels that each Exchange has.

Commissions: This aspect, although not very relevant for me, is also important. In most exchanges the commissions are very low, between 0.020% and 0.010%, which is hardly noticeable. If you use an Exchange with somewhat higher commissions, you could save on commissions by using other platforms.

Functionalities: Over time we have seen that exchanges have been developing and offering more options to their users. Therefore, having different functionalities can be a plus, since it will allow you to generate more money for example with staking options, or if you want to invest in NFT’s, if it has its own Marketplace like Binance.

Withdrawal: Another aspect that I consider very important, if at some point you plan to withdraw cryptocurrencies from the Exchange, are the commissions to withdraw cryptocurrencies, and the minimum to withdraw. Each Exchange has its commissions and minimum for each cryptocurrency, and in some platforms it can be quite expensive to withdraw your cryptocurrencies to a wallet or another Exchange. Even so, to check it, I recommend you to look at withdrawo withdraw the commission that different cryptocurrencies have and compare it with another Exchange.

There are more aspects that may be relevant for other people to use one Exchange or another, but these are certainly one of the most important and that I use before placing money in any exchange.

The main risk and why centralized exchanges have a bad reputation, is because in the end, they are the ones who have your cryptocurrencies. And as the phrase says, not your keys, not your coins, in the end what can happen to your cryptocurrencies depends on that platform. Therefore, many people decide to withdraw them to a wallet, since that is where you have full control of your cryptocurrencies. Although it does not happen in the main exchanges, there is the possibility and risk of having a problem with your account, the platform losing your cryptocurrencies or any kind of error from the company behind the Exchange. Therefore, it is very important to always use known and reputable exchanges, since they are the ones that at the end of the day hold your cryptocurrencies that you have in your account.  

Decentralized

Decentralized exchanges are those that do not have a company behind them, and are used in DEFI. Their main feature is that they are used with your wallet, and at no time the Exchange has your cryptocurrencies, as it happens in centralized exchanges.

Usually, you can find in each network, a decentralized Exchange that focuses on only that network, as could be the case of uniswap, which can only be used in the ethereum network. But then, we have other decentralized exchanges, where you can find multiple networks in that Exchange, as it is the case of Sushiswap, with more than 10 different blockchains that you can exchange cryptocurrencies in this DEFI platform.

If you want to know more information about a specific Exchange, here are the guides of the main decentralized exchanges in each network that you can find below the image.

Binance Smart Chain
Ethereum Network
Solana Network
Harmony Network
Ethereum Network
Polygon Network
MĂșltiples Networks
Binance Smart Chain
Avalanche Network
Terra Network
Avalanche Network
Solana Network

How they work

The operation of decentralized exchanges is somewhat different from centralized exchanges. To use them, instead of creating an account with an email or cell phone, you will have to use a wallet to interact with the platform.

By connecting your wallet to the platform, you will be able to exchange the cryptocurrencies you have for others if that platform has liquidity of that cryptocurrency pair, and at all times, your cryptocurrencies are in your wallet. So, to buy and sell cryptocurrencies, there is no risk that they will keep your cryptocurrencies, as they are always in your wallet.

To be able to exchange a cryptocurrency, go to swap, indicate above the cryptocurrency you want to use and below the one you want to get, click on swap, confirm in your wallet and that’s it. This is a quick summary of how they work. When you exchange cryptocurrencies, you will pay a small commission, which goes to the platform and to those who add liquidity to the decentralized exchange.

This is important, because in order for a decentralized exchange to work, it needs liquidity from users, who place cryptocurrencies in exchange for an annual % that you will receive as a reward for contributing liquidity to the platform and thus allowing users to exchange cryptocurrencies that have liquidity. Unlike centralized exchanges where the liquidity is provided by the company behind and keeps all the commissions, the commission paid in decentralized exchanges, a large part goes to the people who have helped the platform to function.

If you want to know more in detail how the aspects of providing liquidity works, the annual % you can get and other information, I recommend you look at a guide above where we go into more detail, for example, in pancakeswap or quickswap.

Best options

For using a decentralized Exchange, the risk may seem lower, but if you connect your wallet to a very obscure platform and don’t read what you are accepting, you may lose some of your tokens. While this doesn’t usually happen, it can happen if you use unreliable platforms. Therefore, the best options for buying and selling cryptocurrencies in a decentralized way are always the decentralized exchanges with the highest volume on the network.

So, search in the network you use, which are the 3 decentralized exchanges with more volume, and with the first 3, you will not have any problem. In addition, the decentralized exchanges with more volume, usually have more liquidity and greater variety of cryptocurrencies.

I leave you with some examples of the main exchanges in different networks, but my recommendation is that you search in platforms like dappradar for the network you should use. And if you have any doubts, sushiswap is on most networks and is a very reliable platform.

  • BSC: Pancakeswap, biswap
  • Avalanche Network: Pangolin, JOE
  • Solana Network: Raydium, Orca
  • Ethereum Network: Uniswap
  • Polygon Network: Quickswap
  • Terra Network: TerraSwap
  • Fantom Network: SpookySwap
  • Harmony Network: ViperSwap

These are some of the currently most used networks and the decentralized exchanges where there is the most volume for each network.

Risks

In the same way as centralized exchanges, in decentralized exchanges there are also risks to consider if you do not want to lose your tokens. As we have already mentioned, as long as you use a reliable platform with many users and volume, it is very difficult for them to disappear with your tokens.

The main risk are the less known and unreliable platforms, especially in new projects with little time of life. What you should look at, whenever you use your wallet, is when you click on approve tokens, that you are approving, and you can limit the amount of the token you approve, so that the platform cannot use more than this amount.

The main risk is not in buying and selling cryptocurrencies in the swap, but when you do staking and farming, and deposit funds on a platform. If the platform is not well known, it may disappear with the cryptocurrencies you have deposited in staking and farming, and you will not be able to do anything. You cannot control this, and therefore, whenever you enter in little known or reliable platforms, keep in mind that the smaller the project is, the more likely this will happen. Although it does not happen in most platforms, we have seen several cases of platforms that have disappeared with the tokens deposited by their users.

The other risk that exists is when you approve a token, stake it or put it into farming. When you approve it, you can usually see that it comes out unlimited, and what this does is that it allows the platform to withdraw an unlimited amount of that token. This is a risk if it is an unreliable platform, because you can withdraw as much as they want from that token and it will disappear. Therefore, if you want to take a risk on an unreliable platform, when you click on approve token, for example, approve USDT, in unlimited you can set a limit so that, if this happens, they can only withdraw from your wallet the amount you have indicated.

There are other risks such as impermanent loss but this does not depend on the platform, and are aspects that you should know before entering into any LP Tokens farming. If you want to find more information, I recommend you to look again at the decentralized exchanges guides that you can find above.