Planning to Invest in Cryptocurrencies? Here are Two Types of Exchanges You Need

Posted by Allen Smith on December 5th, 2018

By now, you must have heard about cryptocurrencies and how a whole industry has been spun in just less than a decade. Most people got to learn about cryptocurrencies like bitcoin in 2017 after making multiple gains.

Anything that multiplies its value by more than 10 times in less than a year is sure to attract some attention. That is precisely how bitcoin got mainstream attention and the reason you are probably here. While the prospects for bitcoin and other coins have not been as good this year, blockchain technology, which powers the likes of bitcoin promises to turn many industries upside down.

This technology is already affecting traditional industries like banks. Seeing its inevitability, players like JP Morgan are already using blockchain to streamline some of its processes.

The real genius of blockchain however is the fact that you can send digital assets like bitcoin from one part of the world to another without the need of a bank or any other third party. What’s more, the transaction will be completed in a couple of minutes. Other networks like Ripple have much faster transaction speeds.

Getting the ball rolling

So how do you get started? First of all, you need to understand a few basic terms used in this space. One of them is a cryptocurrency exchange.

As you might have guessed, this is just an online marketplace where sellers and buyers meet to transact their coins and tokens. There are over 1600 cryptocurrencies according to CoinMarketCap and holders routinely trade them.

Why cryptocurrency exchanges are important

A cryptocurrency exchange is not a must for transactions to happen. However, they do make the process much smoother and convenient.

You can do three things in an exchange.

1. Buy a cryptocurrency like Bitcoin using fiat
2. Exchange a coin such as bitcoin for another
3. Buy and sell a particular coin

Most cryptocurrency exchanges will give you a free wallet where you can store your coins. Now, these marketplaces are divided into two major ones.

How centralised exchanges operate

These types of exchanges operate more like your traditional stock exchange. In this case it acts as a middleman.

Centralised exchanges take and hold their client’s funds. From here, you can place an order for a particular coin at a certain price. The exchange will find a matching seller and execute the trade.

Some exchanges only accept crypto deposits. These are called crypto to crypto exchanges. That means you can only trade one cryptocurrency against another. Others allow fiat/crypto pairings. www.addisonchurchill.io

Decentralised exchanges and why they are the in-thing among enthusiasts  

Diehard crypto enthusiasts oppose centralised exchanges since they go against the very idea of decentralisation. For them the idea of cryptocurrencies is to allow the exchange of value in a true peer-to-peer fashion.

Centralised exchanges are also often a target for hackers since they hold substantial coins in one place.

As you might have guessed, decentralised exchanges allow parties to transact directly between each other.

In these peer-to-peer systems, you do not send you money to the exchange for custody. Because of this, hackers find it harder to exploit them. Decentralised exchanges are however yet to gain mainstream adoption.

In between the two, we have hybrids which bring the benefits of both worlds.

A word about security

Before choosing an exchange, it is important to look at what security measures they have to safeguard your coins. Be sure to look at their history and what security measures they are implementing.

Lastly be sure to keep your private keys secure. You can lose your coins forever if you lose them.