The R Roundup Presents: Exchanges 101 For Dummies — #8
Exchanges are such an important part of the crypto market and essentially they are the gateway to access the crypto market as you need them to buy and sell tokens.
Like a lot of things in the crypto market, there is quite an expectancy for you to just know how they work which can lead beginners to make quite severe mistakes.
There is no FCA you can run to in crypto to say you lost your tokens not knowing how to use an exchange so without further delay….
Exchanges 101 For Dummies:
What Are Exchanges? 💱
As previously stated, exchanges are the gateway to access in crypto meaning that for you to get involved with cryptocurrencies, you need an exchange where you can “exchange” your fiat currency for crypto.
So in the dictionary definition, an exchange is just a platform where users can trade, buy and sell cryptocurrencies for other assets like fiat or against other currencies.
There are two different types of exchanges that people are currently familiar with within the markets and those are; Centralised Exchanges & Decentralised Exchanges. Both have key characteristic differences which highlight how people use them.
Some examples of exchanges:
There are several exchanges and different ways to use them but understanding the use case and importance of exchanges and how to use them to benefit you.
Why Are Exchanges Important?🤔
When you look at it from a birds-eye view, exchanges are essentially access to the markets and the one thing that is at the forefront of adoption is access.
When you highlight exchanges as the platform where projects/tokens aim to get listed on, it puts into perspective that the more coins on exchanges, means those coins have a higher chance of being identified by retail investors.
Drawing some mission statements from some of the top exchanges it begins to provide some clarity that crypto exchanges aim to be the driving force for mass retail and in some cases institutional adoption.
‘Binance will build a world-class crypto exchange, powering the future of crypto finance.’ — Binance Whitepaper
“Serving the industry and users with superior services and flexible operation strategies” — Kucoin Whitepaper
“Crypto.com was founded on the belief that everyone has control over their money, data and identity.” — Crypto.com Whitepaper
“Swap, earn, and build on the leading decentralized crypto trading protocol.” — Uniswap Main Statement
Due to exchanges, the main aim is to drive more users to their platforms and products so they aim to make them user friendly. This is something defi maximalists have complained about due to the consensual feeling being that DEXs (decentralised exchanges) are not user friendly which has stopped the speed of retail traders exploring them.
Exchanges are also important because in some cases they also invest in a range of products/services and institutions to improve their overall performances and footprint on the traditional financial markets. We have seen large exchanges with large capital like FTX launch venture capital firms to continue their aim of increasing value in the digital asset class.
How To Use Exchanges?🚧
Navigating around exchanges can be quite difficult for someone who has never seen how they look however once one understands one, they all pretty much look the same and do similar things.
For the sake of the example, we will be using Binance but you can apply this on different exchanges.
Once you start playing around on exchanges, you will start to get familiar with the ways they work and it will start to become a lot more straightforward.
There are some youtube videos which you can go through which will enhance your knowledge of centralised and decentralised exchanges👇
The Question Of Security On Exchanges ⚠️
Just like any side of crypto there has been major regulatory pressure for products to air on the side of compliance and this has led to vast expectations of KYC and even in some cases the halt of services in certain states.
The main difference between CEXs & DEXs is that on decentralised exchanges give you your private keys which are the overall security “passcodes” in to your wallet which shouldn’t be given to anyone.
On centralised exchanges those keys are not in your possession which is again something that has left many question marks.
There is an infamous saying that “Not Your Keys, Not Your Coins” which is something we have seen on many occasions of coins disappearing on-exchange with no explanation.
DEXs have more chances of being hacked due to them bering slightly more risky as traders have to find their desired assets contract which can lead to many more security breeches.
The topic of security on exchanges is very long topic and could be a separate article in itself but familiarise yourself with our cybersecurity and blockchain security article for overall insight in how to operate 👇
It’s very important to get a familiarity with exchanges as utilising them effectively can put them in your favour.
Exchanges tend to have similar UI’s and they tend to do the same thing in different ways but getting a hang of the basics can make the process of understanding much shorter.
As a reminder this is not a trading signal, it is an opinion and each trader/investor should know and understand the risks attached to trading. At no point should this be regarded as financial advice
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