This course will take you through the basics of cryptocurrency trading in terms of exchanges, types of transactions, and basic operations.
When you want to sell 1 BTC in your hand, you need to specify a price and find a buyer who is willing to pay that price to trade with you. However, if all cryptocurrency users use such a fragmented approach to find their buyers or sellers, the whole transaction process will become very slow, hence the emergence of cryptocurrency exchanges similar to stock exchanges. Depending on the management model of cryptocurrency exchanges, there are usually two types of cryptocurrency exchanges: decentralized cryptocurrency exchanges and centralized cryptocurrency exchanges.
Decentralized Exchange
A decentralized cryptocurrency exchange, also known as a DEX, is a marketplace that allows direct peer-to-peer (P2P) transactions between cryptocurrency buyers and sellers. Unlike centralized exchanges that have a centralized operating entity, DEXs are generally not managed and controlled by a centralized institution, but instead use smart contracts to manage transactions by simply setting the terms of the transaction, which are authorized by the user and then automatically executed and recorded on the blockchain.
Common DEXs include Uniswap, Sushiswap, Pancakeswap, etc. Users need to use their own wallets to keep their assets and authorize transactions only when they need to trade.
Decentralized exchanges are usually deployed on a specific blockchain and use the blockchain network to run smart contracts. Users only need to have their own crypto wallets to authorize DEX to trade without the need for repeated account registration, verification and other functions. At the same time, users directly own their assets without having to hand over their funds to a third party for management.
Centralized Exchange
A centralized cryptocurrency exchange, also known as a CEX, is generally a trading marketplace managed by a single operating entity. In addition to providing basic cryptocurrency trading, they usually offer customer support services, account deposit and withdrawal services, leverage and derivatives trading to meet the needs of different traders.
A centralized exchange usually uses an order book to aggregate user orders, which is more similar to the trading mechanism of a traditional stock exchange, allowing users to set their own preferred price for pending trades.
Centralized exchanges are also the most popular place to trade cryptocurrencies in the cryptocurrency market today. According to theBlock data, the monthly trading volume of DEX currently accounts for only about 15% to 20% of all CEX trading volumes.
How to Choose the Right Exchange For Youself
Depending on the trader's own level of expertise and practical needs, there are different exchanges to choose from for trading.
Centralized cryptocurrency exchanges usually offer a more user-friendly interface and provide 24/7 customer service support features, and the currencies offered for trading are usually screened to avoid some of the high-risk items. At the same time, some centralized exchanges also aggregate fiat currency trading, leveraged trading, derivatives trading, pledging and other product services, allowing users to use multiple cryptocurrency products on one centralized exchange. However, centralized exchanges also have limitations similar to the need for multiple identity verification and restrictions on the availability of services in specific regions.
Decentralized cryptocurrency exchanges require users to use their own wallets for authorization, which is more demanding to use. And when users want to use different products, they usually need to find a different smart contract for transaction authorization, which is difficult for users to get started. However, decentralized exchanges also offer a relatively large number of tradable coins, and some projects are offering transactions on decentralized exchanges first in the early days. However, precisely because almost anyone can trade any coin on a decentralized exchange, users need to be careful to screen and manage their risk.
Disclaimer
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Crypto investment involves significant risks. Please proceed with caution. The course shall not be considered investment or financial advice.