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Cryptocurrency exchange sectors have been facing remarkable changes since its inception. The very first crypto exchange ‘BitcoinMarket’ was established in 2010 and only facilitates Bitcoin trading. So far, Cryptocurrency Exchanges have been nothing but a “revelation” and act as a great platform for making instant profits among traders.
Many cryptocurrencies have come to the fore like Bitcoin and the price value of these Crypto’s keeps changing every second. The price volatility plays a pivotal part in traders investing in them. For example, the Bitcoin price surged from $61,000 in February 2024 to $73,000 in March 2024. The traders who had invested in Bitcoin in February had a profit of nearly $12,000 in just one month.
But, to make all these profits, users or traders need to approach Crypto Exchanges. These exchange platforms provide the option to buy or sell Bitcoin for traders in a convenient way. Before we go deep into it, it is crucial to learn the crypto exchange basics, their types, and the top thriving crypto exchanges. We have covered everything right from basics in this Crypto exchange guide.
Let’s start with…
What Is A Cryptocurrency Exchange?
Cryptocurrency Exchange is a platform that facilitates trading Cryptocurrencies like Bitcoin or Ethereum between buyers and sellers in a secure manner. In simple words, a Crypto exchange platform connects two or more users with intentions to buy or sell Crypto. Any user can convert their fiat money into a crypto asset or vice versa in a fraction of a second using this platform. To help the trader and enhance the process, these platforms provide several tools as well.
In general, two things that define the growth of an ideal crypto exchange are the security measures it possesses and the trading fee it collects. Security threats are a common problem in digital trading platforms and hence, traders need to look for a highly secure exchange. However, the higher the security, the trading fee will be higher as well in the exchange.
The trading fee is the amount collected by Crypto exchanges for monitoring or tracking a Crypto trade carried by users. To ensure security, the exchange collects revenue through a small commission fee from the traders. In recent times, exchanges have expanded their options for making money through exchanges by offering unique and different trading options. Notably, Crypto exchanges work similarly to stock exchanges but their trading fees are much higher in comparison to stock exchanges.
Having seen what a Crypto exchange is, let’s move on to the type of Crypto Exchanges.
Types of Cryptocurrency Exchanges
Cryptocurrency exchanges can be classified into diverse types based on trading preferences and functionality. Accordingly, here is the diversification of crypto exchanges.
Centralized Cryptocurrency Exchanges (CEX): Centralized exchanges have a middleman or third party to control and manage the trading operations. Based on the method of operation, centralized exchanges can be classified as,
- P2P (Peer to Peer Ad based & Order Book-based) cryptocurrency exchanges
- OTC (Over the Counter) cryptocurrency exchanges
- Derivative trading cryptocurrency exchanges
- Margin trading cryptocurrency exchanges
- Leverage trading cryptocurrency exchanges
Decentralized Cryptocurrency Exchanges (DEX): Decentralized exchanges offer direct trading without the need for third-party supervision. The DEX exchanges can be specifically organized as,
- Orderbook based DEX
- DEX with AMM feature
- DEX aggregator
Hybrid Cryptocurrency Exchanges: Hybrid exchanges have the advantages of both centralized and decentralized exchanges for optimum performance. These exchanges are better in liquidity, speed, privacy, and user experience.
These are the most common types of crypto exchanges in the crypto ecosystem. Each type of exchange has its strengths and limitations. Moving on, let’s look into how Crypto Exchange works.
How Do Cryptocurrency Exchanges Work?
The working process in Crypto exchanges differs based on the type, centralized or decentralized exchange. In P2P Ads-based centralized exchanges, Crypto buyers connect with the right sellers through advertisement and with the help of an Escrow wallet. On completing KYC and connecting a wallet, the user can comfortably buy or sell Crypto in a P2P Ads-based exchange. LocalBitcoins and Remitano are the two best examples of how a P2P Ads-based exchange works.
In P2P order-based exchanges, live prices and charts are available, and users can directly convert their fiat into cryptocurrencies after completing KYC. All they need is a Crypto wallet and an order will be executed based on the trader’s requirements (like a market order, limit order, or stop order). Users will have to pay a small trading fee for executing the order and the Crypto will be transferred to their wallet. The best example to understand how trade takes place in an order book-based centralized exchange is Binance.
Here’s a general overview of how trade takes place in order book-based Centralized exchange.
- Both buyer and seller should have a valid trading account before getting started with a crypto exchange.
- The wallet should be deposited with sufficient funds required to initiate trading.
- Upon choosing the preferred trading option (like spot, margin, future derivatives, etc), the buyer can place an order. Additionally, he/she has the options (like a market order, limit order, or stop order) to screen the trade execution.
- The trade engine will process the order matching as per the defined conditions.
- The fiat amount corresponding to asset purchase and trading fees will be debited from the buyer’s account.
- The buyer’s wallet will receive the crypto assets and the seller’s wallet will receive the payment.
As far as decentralized exchanges are concerned, the users can directly connect their wallet to the platform and start trading. KYC isn’t mandatory in these exchanges which is a major advantage. Here, fiat money isn’t involved and cryptocurrencies can be swapped for other Cryptocurrencies. A slippage fee and a small trade fee are collected by the platform for allowing swapping. Apart from the swapping feature, decentralized exchanges have other ways to earn like staking, yield farming, etc. The best example to understand how trade takes place in an AMM-based decentralized exchange is Pancakeswap.
Knowing information on the popular Crypto exchanges can help to understand better…
Popular Cryptocurrency Exchanges
Here is the list of the top 10 cryptocurrency exchanges with a significant user base and massive daily trading volume.
- Binance
- Coinbase
- Kraken
- Bybit
- OKX
- KuCoin
- CoinDCX
- Bitstamp
- Huobi
- WazirX
The top crypto exchange list is compiled based on the popularity, user count, and average trade volume. Generally, crypto exchanges maintain credibility by offering a user-friendly trading experience. At the same time, they manage to stay ahead of the competition by carrying innovations. With these key factors, crypto exchanges could record streamlined growth both now and in the future.
Next up, we look into the most significant part of this Crypto exchange guide.
Let us now elaborate on…
Future of Cryptocurrency Exchanges
Around the globe, crypto usage is significantly increasing at a rapid speed. The vast growth is expected to touch $6.4 billion by 2025 according to Forbes’ Analytics. Many crypto exchanges have come into play with an extraordinary set of features and services. However, their phases of transition were not so easy for them. When looking beyond the current state, certain factors that influence the future growth of crypto exchanges are worth mentioning here. That includes,
- Technological advancements
- Regulatory development
- Increasing cryptocurrency adoption
- Rising hope for decentralization
- Awareness of financial products
- Global financial inclusion
- Security and Transparency in trading approaches.
- Market volatility and momentum
- Investment in crypto assets
- Impact of generalization and digitization on Society
The above-mentioned factors are pivotal in describing the future of cryptocurrency exchanges. Some factors might seem to be challenging and varying with respect to real-world conditions. But most of the factors ensure solid phenomena for growth and investment possibilities. By the way, cryptocurrencies are considered to be the future of the financial system. So the future of the cryptocurrency exchange will probably be on an upbeat cycle.
Also Read: Why Create A Mobile App For Your Crypto Exchange Business
Concluding Thoughts…
Recent studies on the topic depict that the cryptocurrency market will triple by 2030. Additionally, traditional banks won’t be necessary and anyone can easily trade crypto from their home. This digital adoption makes it clear that Crypto exchanges are here to resolve issues in the real world and will continue to grow globally. The wider adoption of cryptocurrency propels the demand for feature-rich and advanced crypto exchanges.
On the whole, we have provided the major insights about Cryptocurrency exchanges and how trading takes place inside in this Crypto exchange guide. Cryptocurrencies have left an unmatchable impact in the world in the last few years and the time is up for everyone to invest in it. Be it a trader or a business head, it remains a choice of yours!
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