Centralized cryptocurrency exchanges, explained

What is a centralized exchange of cryptocurrency?

It is an online platform and the most common way to operate with cryptocurrency.

This includes buying/selling cryptocurrencies with fiat money (fiat/crypto pairs) as well as buying/selling cryptocurrencies with other cryptocurrencies (crypto/crypto pairs). They can be seen as an online market for the entire cryptocurrency network.

 

What does it mean that an exchange is centralized?

Being centralized means trusting someone else to manage your money.

In the past, the word “centralized” was given to all institutions that managed finances.
Being centralized means that there is a trusted intermediary to handle any asset that may be in a trade. In a bank, for example, a customer gives his money to the bank to hold it. This institution now has full control of the client’s money.

In many cases, this is much safer than a person finding some way to manage themselves. Banks have many values and a team to monitor the money of their customers. The bank can also offer a variety of services, such as loans, because the bank has a large amount of money and has created a relationship of trust with the customer.

The centralized exchanges of cryptocurrencies are not different. A user can store their money in the exchange. The currency is now in the hands of the exchange, but the intermediary’s confidence makes it easy for a client to retrieve a lost password or 2FA because that client has given the exchange full access to his account. This can also eliminate customer pressure to have 100% control over your money. There are many stories of investors losing hundreds of thousands of dollars because they lost the private keys of their hardware wallet. If your money was in a centralized exchange, you would not have to worry about that; Recovery would be as easy as showing a passport or verifying identification.

How is a centralized exchange different from a decentralized one?

The cryptocurrencies and the blockchain are decentralized by nature, which also allows exchanges to be decentralized.

In simple terms, a decentralized cryptocurrency exchange (DEX) eliminates the middleman by creating a highly intelligent “confidence-free environment”. Offers are made through smart contracts and atomic exchanges so that the currency never passes through the hands of a trust (Escrow) service – it’s just peer-to-peer. The DEXs are still in their infancy and are not very popular yet, but by 2018 you can see a lot of progress with decentralized exchanges.

Do all centralized exchanges provide fiat/crypto matches?

No.

All exchanges have the crypto/crypto pairing (ex: changing 1 BTC for 9 ETH), but not all have fiat/crypto matches (eg, changing $ 900 for 1 ETH). Some of the most popular exchanges that provide fiat/crypto matches are:

  • Coinbase – the most popular in the world – supports Bitcoin, Bitcoin Cash, Litecoin and Ethereum.

  • Gemini – Based in New York and high standards of regulation for the United States. Supports Bitcoin and Ethereum

  • Kraken – Kraken has a variety of crypto/fiat combinations in addition to USD and EUR, which you can see on your site.

  • Robinhood – a popular trade app that provides fiat pairings to Bitcoin and Ethereum.

Is the volume important for exchanges?

The more volume there is in an exchange, the less volatility and market manipulation there will be.

If Alice is trying to buy 1 BTC for the current exchange price of $ 10,000 and the volume on the site is extremely high, it is likely that she will buy 1 BTC almost instantly. If the market price is $ 10,000 on a very low volume site, she can consume all sales orders that are at $ 10,000 before she can buy her entire Bitcoin. Then Alice would need to buy the higher sales orders to satisfy her order, losing money and also making the price of Bitcoin go up in that exchange.

 

Are centralized cryptocurrency exchanges safe?

No centralized exchange is immune to attacks.

Many hacks have occurred throughout the course of the history of cryptocurrencies, but in many cases, the exchange took out of pocket to pay customers for the stolen money. DEXs are impossible to hack, but users are much more vulnerable to running out of money. Popular centralized exchanges are safe in the way that banks are safe.

 

Is verification required to open an account in an exchange?

The regulations of each country are still confusing, but exchanges around the world require a minimum verification to authenticate the account.

Many exchanges allow users to open an account without identity verification, but those accounts will have extremely small withdrawal/deposit limits. Basic verification usually requires an image of the user’s passport / ID, and 2-factor Authentication enabled. 2FA is a secret password that is regenerated every thirty seconds or at least every time a user enters your account. 2FA is normally stored in the user’s phone.

 

Which exchanges have the most volume and crypto matches?

While exchanges are still new and increasingly popular every day, there have been some in the last year 2017 that have been highlighted in volume and quantity of coins to trade.

  • Binance. Although Binance was launched in 2017, the largest volume of any exchange has already begun to operate. This exchange is based in China and is so popular that most of the altcoins first move to this important exchange after their ICO. Level two verification allows 100 Bitcoin to be removed while level one allows 2 Bitcoin/day to be removed.

  • Bittrex. Bittrex has been a long-standing cryptocurrency exchange based in the United States. While the most popular currencies are BTC and ETH, Bittrex has more than 250 pairs of trades. It is known for its easy interface for beginners in crypto.

  • Bitfinex. Located in Hong Kong, Bitfinex is another long-standing cryptocurrency exchange that is still in the top ten trading volume.

  • Upbit. While many crypto exchanges in South Korea have suffered during the crypto crackdown in the country, UpBit remained at the top and even broke a record in January 2018 due to the largest volume of operations in history.

  • GDAX. The Global Digital Asset Exchange is an extension of CoinBase, one of the most popular exchanges in the world. GDAX is not suitable for beginners but it is very useful to operate with margins, as well as to operate with crypto/fiat and crypto/crypto. Users are also insured up to $ 250,000 by the Federal Deposit Insurance Corporation (USA). While offering many more options and features than its sister company Coinbase, Vice President Adam White of Coinbase said: “Coinbase is designed for retail customers, while GDAX focuses on serving sophisticated and professional merchants.”

This article does not contain investment advice or recommendations. Every investment and every movement of trade implies a risk, you must carry out your own investigation when making a decision.

Credit: Cointelegraph

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