Cryptocurrencies have been the hot talk in the finance town in recent years. They had a great entry into the world of finance and technology. Also, they acted as an alternative to traditional currency. Earlier, crypto enthusiasts used the bitcoin mining process to reap more profits. But later on, they started to show more interest in starting a crypto exchange.
Cryptocurrency exchanges have always been a trending topic. As for now, there are more than 500+ crypto exchanges in the market. All these crypto exchanges are very different in their features and user interface. Some of them are regulated, while some of them are completely decentralized, meaning, they can’t be regulated. Usually, decentralized exchanges operate autonomously.
In this blog, let us see a simple overview of cryptocurrency exchange and the different types of crypto exchanges that are available in the market in 2023. Through this blog, you can understand what different type of crypto exchange suits your business needs.
Overview Of Cryptocurrency Exchange
A crypto exchange is the finest place to trade cryptocurrencies in a hassle-free manner. Here, crypto users can buy, sell or trade digital assets or digital currencies in a secure way. The cryptocurrency exchange admin usually lists the major crypto coins in their platform for trading. Some of the popular coins include Ethereum, bitcoin, ripple, and lite coin. This is more like the stock market exchange, where all the companies list shares for trading.
Crypto exchange are one of the best online businesses for startups and entrepreneurs to kickstart. Here, the exchange owner charges a fee for every transaction, withdrawal, and deposit. Apart from that, owners can earn more profits by integrating the IEO module as well as including attractive features like Margin trading, futures trading, etc.
For example, if a user wants to buy Crypto, he/she has to visit the best cryptocurrency exchange. Several trading methods will be available, and the user needs to select his preferred method. The user has to check the equivalent fiat price of the Crypto on the exchange and deposit funds into his/her account. Once the user transfers the equivalent fiat price, the Crypto will be added to his/her account.
Moving on, let’s look at the 3 different types of Cryptocurrency Exchange platforms.
3 Different Types of Cryptocurrency Exchanges
Currently, three different types of cryptocurrency exchanges are ruling the crypto world. They are,
- Centralized cryptocurrency exchange (CEX)
- Decentralized cryptocurrency exchange (DEX)
- Hybrid cryptocurrency exchange
Now, let us see each of the types of cryptocurrency exchanges with their pros and cons.
Centralized Cryptocurrency Exchange
Centralized Cryptocurrency Exchange, or CEX, is a traditional type of exchange. Trading through centralized exchange involves a middleman to complete the trade. This type of crypto exchange is handled by a central authority. The main advantage is that the admin controls the platform, and hence, the exchange takes responsibility for any sudden loss of a digital asset.
Besides, CEX will have full control over the securities and functionalities of the exchange. The admin will monitor the user’s crypto wallet and transaction history. Recent surveys say that traditional Centralised Crypto Exchanges are more compared to other types of exchanges.
The Centralised Crypto Exchange can be subdivided into five categories.
- Order Book Exchange
- Ads based Exchange
- User to Admin Exchange
- Crypto derivatives Exchange
- Margin Trading Exchange
Order Book Exchange
Probably, Binance is the best example of an Order book Exchange. Order Book contains the updated Crypto market prices and the scale at which orders have been rising. This is the easiest way to buy/sell or trade Cryptos, and all users have to do is set an order for the trade to be executed. The order can be of any type, namely stop order, limit order, market order, etc. This type of exchange has the most users and has more liquidity subsequently. Exchange owners can generate lucrative revenue through this type of exchange.
P2P Ads-based exchange allows users to trade directly without a middleman. Here, users can create an advertisement listing how many cryptos they would like to buy or sell. So other users can respond and negotiate terms and payment methods with other users directly. Once the negotiations are done, the two users can either use a digital method to make the payment or even collect directly through a face-face meeting.
The escrow-based system acts as the main component here to ensure no fraudulence takes place while trading. LocalBitcoins, Paxful, and Remitano are some of the top cryptocurrency exchanges in the marketplace.
User to admin exchange
Just like the name, User to Admin Exchange allows direct negotiation between the user and admin over the price of Cryptos. This type of exchange is mainly used by users who prefer bulk trading and is also called OTC (Over-the-counter) trading. The admin will have all the control over the securities of a particular exchange. For instance, Coinbase and Kraken are some of the exchanges that allow OTC trading.
Crypto derivatives Exchange
Crypto derivates Exchange is one of the advanced additions in the market and is mainly used for hedging and speculation purposes. Through this exchange, users get to understand the Crypto market with low or reduced investment from their side by backing their assets. The two main features of Crypto derivates, futures and Perpetual constitute the Crypto derivatives exchange.
Through futures, an agreement contract between buyer and seller is set for a Cryptocurrency at a future date for a price. Once the contract expires, the Crypto gets sold to the buyer. Perpetual follows the same procedure as future. However, there isn’t any expiry date, and traders can hold on until they wish. Bybit is a popular Crypto exchange that facilitates Crypto derivatives.
Margin Trading Exchange
Most exchanges allow a Margin trading feature that allows users to buy Cryptos even without sufficient funds in their accounts. It is also called leverage trading, as users borrow funds from the exchange and can use the profit to repay the debt. It is similar to buying a loan from a bank, and the profit earned can multiply with low investment.
Having seen the subdivision of Centralized Crypto Exchanges, we can now look at the pros of CEX.
Benefits of Centralized Crypto Exchange (CEX)
- These exchanges have high trading volume
- High functionalities and a lot of additional features for users
- These exchanges have high liquidity
- Highly secured and exchange takes care of users’ Crypto assets.
- Owners can generate lucrative money through different methods.
Decentralized Cryptocurrency Exchange (DEX)
Decentralized Exchange is completely in contrast to a traditional centralized exchange and doesn’t involve a middleman. Instead, the exchange trades are facilitated through the embedded lines of code called Smart Contracts. Shortly known as DEX, this type of Cryptocurrency exchange does not depend on any centralized services or organization.
DEX is similar to P2P Ads-based exchanges, but there are some minor changes in comparison. In DEX, no one will monitor your transactions. So, here the transactions are completely done through an automated process, and the system is completely controlled by the users.
In DEX Platforms, users don’t have to provide their identity details and will only need to connect their wallet to enter the platform directly. DEX is the base for Defi, NFT Marketplaces, and Metaverse, and the common connecting aspect is decentralization.
Meanwhile, here are the benefits of the DEX platform.
Benefits of Decentralized Crypto Exchange
- The possibility of cyber attacks and fraudulent activities is less in DEX compared to centralized crypto exchanges
- Hacking is highly unlikely because it is totally protected with the secured blockchain.
- Eliminates the intermediates, admins, and other third parties in this exchange platform
- Any central authority or government can not shut down the exchange
- No central company can control the user funds
- Crypto traders can have control over their funds.
- Anonymity for users
Hybrid Cryptocurrency Exchange
The hybrid crypto exchange is a combination of both the centralized exchange and DEX. Among the types of Cryptocurrency exchanges, this type eliminates most drawbacks of both CEX and DEX. For example, the platform can provide high-speed trading pairs equal to Order book-based CEX platforms.
Else, it can provide tightened security features that equal the security systems of DEX. So, the user’s funds are usually safe and secure in their crypto wallet. To sum it up, Hybrid Cryptocurrency Exchange comes with a secured trading platform where users can buy and sell major cryptos instantly.
Benefits of Hybrid Crypto Exchange
- Transactions are simple, fast, and transparent.
- User funds are completely stored in a cold wallet. So their funds will be safe and protected from cyber-attacks.
- Two-factor authentication feature will be available for all the users in a hybrid exchange
- This type of crypto exchange is unlikely to be hacked
- It overcomes the drawbacks of both traditional CEX and DEX.
- The architecture used in the hybrid exchange is highly scalable.
- Users can have control over their funds and have all security systems to safeguard users’ funds.
These three types of Cryptocurrency Exchanges remain the basic classification of a Crypto trading platform. From the trader’s point of view, you can definitely earn profits through trading in different types of exchanges. Going for an Order-book Exchange would definitely help with the number of users on these platforms.
On the other hand, if you are an aspiring Crypto enthusiast with the idea to start a Crypto Exchange, building an Order book Exchange is among the most successful solution. Also, it can be quite profitable with the number of revenue-generating methods. For more guidance to start an Exchange, you can approach a Cryptocurrency Exchange development company like Coinsclone for your business.
Why Choose Coinsclone for Starting a Crypto Exchange Business?
Coinsclone is a leading cryptocurrency exchange development company in the crypto industry. We have years of experience in providing top-notch crypto solutions with perfect outcomes. We excel in offering premium development solutions with a notable success rate.
Also, we have a dedicated team for providing 24/7 effective technical and customer support to all our global clients through the internet. If you are planning to start a Crypto trading platform, you can approach us for the best solution in the market. Although you can develop from scratch in a lengthy process with us, we suggest you purchase our white label Cryptocurrency exchange software as it gives you a lot more business benefits.
A white-label Cryptocurrency exchange software helps you to launch your own crypto exchange within a few days at an affordable price. Get in touch with us to know the best price quotations for developing your Cryptocurrency Exchange.