Crypto exchanges — deep understanding of basics
📌 How they work?
📌 How they work?
📌 Are they centralized?
📌 Is it safe to keep assets there?
📌 Most famous crypto exchanges.
Do you know the answers for these questions? If not, this material is for you.
Crypto exchanges can be very controversial and simultaneously be under very legit and strict control, or have huge problems with liquidity and trade not their money/assets, building Ponzi scheme or other scam.
Deep understanding how exchanges work, what is the way of swapping, trading crypto assets/FIATs can save a lot of money, especially if it affects casual customer.
Agenda:
- intro,
- what is it?
- how they work?
- how they make money?
- centralized vs decentralized exchanges,
- conclusion.
What is it?
Crypto exchange is literally a place where customers can trade FIAT money for crypto assets and vice versa.
Exchanges publish the exchange rate for each pair of tradable assets: crypto-crypto, fiat-crypto, crypto-fiat.
Publishers can trade assets by by publishing offers in the digital exchange buy sell book.
Crypto exchanges with a huge reputation and great quality of the service always take care of clients funds, if there are some hackers attacks, they give back all of the losses.
How they work?
The core, fundamental of crypto exchange work is a live order book. Mainly, the pair rating is established by live buys and sells and the trading volume of these operations.
Bigger exchanges have more established rating, because of the volume differences in different kind of platforms.
How crypto exchanges make money?
The most common way of earning money by exchanges is adding a fee to every transactions, as crypto market has huge fluctuations, fee likes 0.1% does not matter. Especially when asset makes 10x growth.
Centralized vs decentralized exchanges
Centralized exchanges accumulate assets and provides coverage for that. As long as they not trade your funds and have full liquidity, there are no needs for worries.
However, there is a huge reminder:
“Not your keys, not your crypto”
If exchange generate a wallet and you do not have private key for that, it is vulnerable to some cyber attacks. Do not make a mistake and if you use centralized exchanges, transfer assets to own wallet.
Decentralized exchanges function basing on smart contracts, so it is more secure from the overall point of view. By that is meant that transactions are made only under strictly defined rules, included in a code run on blockchain.
That is how generally works DeFi:
Conclusion
Crypto exchanges are practically the best way of trading assets and participate in crypto market. It almost impossible to avoid them, if it is needed to purchase or sell some tokens.
Wise usage and deep understanding how they work, can be crucial to keep funds secure and do not be vulnerable to some cyber frauds. That is why knowledge, is specially in this area is the key to use it smart.
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