What is a crypto exchange? Buy crypto with fiat and exchange all coins on a centralized exchange, or swap tokens on a decentralized exchange.
Contents:
What is a crypto exchange?
A crypto exchange is a platform where you can trade one crypto for another.
There are different types of exchanges that offer different types of crypto swaps.
You can do cross-chain swaps on centralized exchanges, and on-chain swaps on decentralized exchanges.
If you’re doing on-chain swaps, make sure you find the right decentralized exchange for your network.
What’s the difference between on-chain and cross-chain swaps?
There are two different types of swaps: on-chain swaps, and cross-chain swaps.
On-chain swaps mean swapping tokens that run on the same network. For example, swapping one ERC-20 token for another ERC-20 token on the Ethereum network. Or swapping a BEP-20 token for another BEP-20 token on BNB Smart Chain network.
Cross-chain swaps mean swapping cryptocurrencies that run on different networks. For example, swapping ETH for BTC, or ATOM for BNB, or SOL for XRP.
What are the two main types of exchanges?
There are two types of exchanges
- Centralized exchanges
- Decentralized exchanges
What are centralized exchanges?
Also known as CEXs, centralized exchanges let you trade any supported crypto for any other supported crypto, regardless if they’re on-chain swaps or cross-chain swaps.
Most centralized exchanges also allow you to buy and sell crypto for cash.
When you use a centralized exchange, you are trusting them to custody your crypto, so using a centralized exchange does carry some counterparty risk.
Centralized exchanges, also referred to as custodial exchanges, keep digital order books, which are lists of buy and sell orders.
Orders consist of volume (the amount of an asset) and price. Exchanges match up buyers and sellers and update current market prices based on the last price an asset sells for.
When you use a centralized exchange, you’ll need to go through a KYC (Know Your Customer) process, also known as identity verification.
This involves registering an account and providing personal information, such as your name and address.
The KYC process also usually requires proof of identification, like driver’s license or passport, and sometimes other documents that verify your identity.
This is due to AML (anti-money laundering) regulations. In some areas, or jurisdictions, it’s difficult to buy, sell, or trade crypto because of local laws.
Different exchanges serve different regions.
You can find our recommendations for centralized exchanges here: Best centralized exchanges.
What are decentralized exchanges?
Also known as DEXs, decentralized exchanges let you perform on-chain swaps, so you can trade tokens that run on the same network.
Some decentralized exchanges support multiple networks, so you can switch the network you want to swap tokens on.
You don’t have to go through a KYC process or share your personal information. All you need to swap your tokens is an internet connection.
Trading on DEXs is done through smart contracts, which is code that runs when certain conditions (such as your desired price and amount) are met.
Swapping on a DEX is done via self-custody wallets, which means you retain control of your secret recovery phrase and private keys.
It’s important to note that you can’t buy or sell crypto for fiat on a DEX. You’ll need to exchange fiat for crypto on a centralized exchange or another fiat onboarding platform.
Decentralized exchanges allow you to trade directly from your wallet by interacting with smart contracts on a trading platform.
You can find our recommendations for the best DEXs here: Best decentralized exchanges.
So which type of exchange should I use?
Which type of exchange you use depends on what you need it for.
Would you like to buy crypto with fiat? Or perform cross-chain swaps? Go to a centralized exchange.
Want to swap tokens that are on the same network? Use a decentralized exchange that supports your network.
Find popular exchanges of both flavors here: