Bitcoin, launched as a simple yet important whitepaper, has experienced incredible growth over the past decade. BTC’s journey has resulted in forming a web3 ecosystem that includes millions of cryptocurrency networks like blockchain communities, cryptocurrencies, and crypto exchanges.
This article will focus particularly on cryptocurrency exchanges, where we will get into a 360-degree guide. We will cover different types of exchanges, find out the best trading platforms, and also discuss the risks associated with specific exchanges.
What Is A Crypto Exchange?
As platforms that connect buyers and sellers, crypto exchanges are the backbones of our web3 ecosystem. Users trade various cryptocurrencies and other digital assets like NFTs through an exchange. Also, they provide digital versions of fiat currencies like the stablecoin USDT.
Launched in 2010, BitcoinMarket was the first cryptocurrency exchange. It was created by a Bitcoin maximalist called dwdollar (a pseudonym). It attracted a huge number of investors, laying the foundational stone for the current cryptocurrency frenzy.
Different Types Of Crypto Exchanges
According to bitdegree data, there are around 1860 crypto exchanges active now. Beyond the privately owned centralized exchanges (CEX), community-owned decentralized ones (DEX) enable peer-to-peer trading. Some of these exchanges combine both DEX and CEX, forming a hybrid.
Guide To Centralized Exchanges (CEX)
Some of the most commonly used exchanges like Binance, Coinbase, Bybit, and Kraken fall into CEX. These platforms usually demand the identity of the users where they have to undergo a verification (KYC, Know Your Customer). After bringing your funds into the platform, you can trade assets without doing a direct wallet transaction. This decreases the fees and the time required for transactions.
Most users tend to choose CEX for its user-friendly interface and advanced features. The prominent ones usually have high trading volume, assuring liquidity and efficiency. Additionally, they provide margin and futures trading. Some of the exchanges have features like crypto launchpad and staking programs. Users can manage time by creating time-based buy and sell orders, which will automatically be triggered.
Top 10 Centralized Exchanges by Trading Volume
| Sl. No | Exchange | No. of Markets |
|---|---|---|
| 1 | Binance | 1702 |
| 2 | Bybit | 1066 |
| 3 | Coinbase Exchange | 411 |
| 4 | OKX | 796 |
| 5 | Upbit | 398 |
| 6 | Bitget | 1216 |
| 7 | Karaken | 1034 |
| 8 | KuCoin | 1294 |
| 9 | HTX | 858 |
| 10 | Bitfinex | 372 |
Guide to Decentralized Exchanges (DEX)
Decentralized exchanges allow direct wallet-to-wallet transactions, commonly called peer-to-peer transactions, without an intermediary. When centralized exchanges store our crypto in the exchange’s wallet, here our funds will reach the destination without passing through a third party. The trades are managed through automated smart contracts that offer complete transparency and anonymity. However, the limited liquidity and non-user-friendly interface detach the majority of users from these platforms.
DEX platforms are primarily used by those who want to stay anonymous, and by those who emphasize owning the custody of their crypto in their own wallets. Another important reason for using DEX is the availability of newly launched tokens. Most new arrivals will not be available in centralized exchanges. However, they can be purchased in DEX if you have contract addresses.
Top 10 Decentralized Exchanges by Trading Volume
| Sl. No | DEX | Market Share | No. of Markets |
|---|---|---|---|
| 1 | Raydium | 30.14% | 1540 |
| 2 | Uniswap V2 | 2.67% | 1580 |
| 3 | Curve (ETH) | 1.93% | 134 |
| 4 | Uniswap V3 (ETH) | 10.17% | 907 |
| 5 | Pancakeswap V3 (BSC) | 3.12% | 684 |
| 6 | Uniswap V3 (Arbitrum) | 4.85% | 272 |
| 7 | Orca | 3.46% | 962 |
| 8 | Pancakeswap V2 (BSC) | 2.51% | 2112 |
| 9 | Uniswap V3 (Polygon) | 0.80% | 341 |
| 10 | Uniswap V3 (Optimism) | 0.34% | 109 |
Current Trends: Automated Trading in Exchanges
A recent milestone in crypto trading was the emergence of automated trading bots. Previously employed by large hedge funds and investment banks, now these systems are available for individual traders. Various crypto trading bots are available in the market. Some of the centralized exchanges have integrated them into their interfaces. Web3 traders can purchase these bots that will help in saving time, handling large amounts of data, and moving according to commands.
Concluding Thoughts: Risks and Challenges of Crypto Exchanges
Whether it is CEX, DEX, Hybrid, or a Bot, all have various risks associated with them. Historical data shows that various successful hacking was done in the crypto realm, especially in the centralized exchanges. If not properly audited by an authority, DEXs can also be hacked by manipulating the smart contract code.
Other risks associated with crypto exchanges are the scrutiny of regulatory authorities. In the past, certain changes and updations in government policies have disrupted the functioning of several exchanges. The changing regulatory landscape gives hope for a better collaboration between governments and crypto exchanges.