Navigating the Crypto Market: Understanding Exchange Types

  • May 29, 2023
  • 4:00 minutes


Trading volumes of crypto have reached $139 million. In fact, 97% consider digital assets like cryptocurrency a safe way of investment.

Such a high inclination towards cryptocurrency makes the need for platforms to buy, sell, and trade these assets important.

This is where crypto exchanges come into play. In this blog, we’ll explore the different types of crypto exchanges available in the market today and how they function to provide users with access to the world of cryptocurrency.

Crypto Exchanges – The Three Types

An organization that facilitates the exchange of digital or cryptocurrency for other assets is known as a cryptocurrency exchange or a digital currency exchange. There are three types of crypto exchanges —

  • Centralized cryptocurrency exchange
  • Decentralized cryptocurrency exchange
  • Hybrid cryptocurrency exchange

Let’s elaborate on these further:

Centralized Cryptocurrency Exchange (CEX)

A centralized cryptocurrency exchange is like the regular stock exchanges you’re used to, and it’s where buyers and sellers come together. And the exchange acts as a middleman.

Here are some characteristics of CEX:

  • In the world of virtual assets, “centralized” means trusting someone else to take care of your money.
  • Unfortunately, centralized exchanges are vulnerable to hacking attacks.
  • Most centralized crypto exchanges offer crypto-to-crypto pairings.
  • But not all of them provide fiat-to-crypto pairings.

Also, read The Digital Currencies in UAE

Here’s how a centralized exchange typically works:

  1. You give your money to the exchange.
  2. The exchange holds it for you like a bank or trusted middleman.
  3. You can then monitor the prices of the available cryptocurrencies on the exchange. Depending on the exchange, you can trade your fiat currency (such as the US dollar) for a cryptocurrency (such as Bitcoin).
  4. You then place your order, and the exchange finds a seller to match your buy or a buyer if you’re selling.

And that’s it! You just bought or sold crypto on an exchange.

Decentralized Cryptocurrency Exchange (DEX)

A decentralized cryptocurrency exchange is all about keeping things accurate to the philosophy behind the crypto industry.

With a DEX, you don’t have to rely on an intermediary (a middleman) to hold your funds.

Instead, it’s a marketplace where buyers and sellers come together and process transactions directly. In other words, it’s a peer-to-peer trading platform. Here are some traits of DEX:

  • One of the most significant advantages of DEXs is that they’re harder to hack than centralized exchanges.
  • But there’s a flip side to this coin: you’re more vulnerable to locking yourself out of your money.
  • This means you must be extra careful with your account credentials and private keys to ensure you don’t lose access to your funds.
  • Another challenge with DEXs is that they can have low liquidity due to a lack of popularity right now.

But as the crypto industry continues to grow and evolve, DEXS may become more widely used.

This could increase their overall popularity and hence liquidity.

Also, read Digital Payments Trends in UAE to Look For in 2023

Hybrid Cryptocurrency Exchange

Hybrids aim to bring together the best of both worlds from centralized and decentralized exchanges. Here’s what defines hybrid cryptocurrency exchange:

  • Hybrids aim to function like CEX.
  • They want to offer the liquidity of CEX.
  • But hybrids provide added privacy and security like DEX.

The first hybrid exchange was called Qurrex, and it was launched back in 2018.

The Qurrex team came together in 2016 with experts with years of experience in the forex markets.

They all saw the potential of combining the best practices of traditional exchanges to create a new generation of cryptocurrency exchanges that blended both centralized and decentralized elements.

Here’s a table explaining the different categories of crypto exchanges:

Remember, these are generalizations; each platform may have different features and characteristics.

Final Thoughts

The increasing popularity of cryptocurrency has led to a growing need for reliable and secure platforms to buy, sell, and trade these assets. Three main types of crypto exchanges are available: centralized, decentralized, and hybrid.

While centralized exchanges offer high liquidity, they are vulnerable to hacking attacks.

Decentralized exchanges, on the other hand, prioritize security and user control but often have lower liquidity. Hybrid exchanges blend the best aspects of centralized and decentralized exchanges to provide users with liquidity and safety.

The crypto industry continues to evolve. Seeing how these exchanges develop and what innovations will emerge will be interesting!

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