With the popularity of Bitcoin and other cryptocurrencies growing, there are now a plethora of cryptocurrency exchanges to choose from. It can be difficult to choose the right cryptocurrency exchange for your needs. In this guide, we'll show you how to pick the best exchange for your needs.
To begin, if you don't already have cryptocurrency, search for an exchange that allows you to deposit funds. A national currency is sometimes referred to as fiat currency in this context. Many common exchanges, for example, sell Bitcoin to USD as a trading pair, while others concentrate solely on cryptocurrency trading with no fiat involved.
So, if you don't have any crypto, find an exchange that allows you to deposit fiat currency and then either buy/trade with fiat or convert your money into crypto. It is recommended that you use an exchange that is located in your country or strongly supports your country of residence for this. You'll almost certainly be asked to provide evidence of identity, so be prepared.
Centralised Exchange versus Decentralised exchange
The words ‘centralised' and ‘decentralised' are often used in this context.
When it comes to selecting the best cryptocurrency exchange for your needs, understanding the main differences between centralised and decentralised exchanges is critical. A structure that is controlled by a single, governing body, such as a government or a bank, is referred to as centralised. Decentralised refers to a structure that is operated by a distributed network rather than being controlled by a single authoritative party. A distributed network is a collection of devices (nodes) that work together to power a network/system, ensuring that no single location becomes a hacking target. Furthermore, the people have power over a decentralised structure.
Now that you've had a better understanding of those two words, let's look at centralised and decentralised exchanges.
A CEX, or centralised exchange, works similarly to a standard stock exchange. The service allows buyers and sellers to purchase, exchange, and sell their crypto. The exchange then acts as a middleman, or a party that facilitates the transaction. Beginners would find it easier to use centralised exchanges.
In the crypto world, centralization is often viewed as a foe because it necessitates a level of confidence in a third party to manage your funds, which is not needed if you use a decentralised exchange. There are a variety of other explanations why centralization is undesirable, but in the sense of a CEX, it is because you are entrusting your crypto to the exchange. Furthermore, since a centralised organisation has a single point of failure, it is more vulnerable to a hack, while a distributed and decentralised system is operated by several nodes all over the world, making decentralised exchanges less likely to be hacked.
A DEX, or decentralised exchange, does not keep the funds like a CEX. A DEX encourages peer-to-peer trades by eliminating the need for a middleman. They are slightly more difficult to hack than a CEX because they are not centralised and therefore do not have a central server/device running the process. Users, on the other hand, are more likely to lock themselves out of their money as a result of this. Another disadvantage to DEXs is that if there aren't enough people using the exchange, there can be times of low volume and liquidity.
Finally, both CEXs and DEXs have advantages and disadvantages. Ultimately, deciding whether to trust a CEX with your crypto or a DEX for their added security would come down to a choice between the two. Hybrid exchanges are currently in development to combine the functionality and liquidity of a CEX with the stability of a DEX. However, before a live hybrid exchange is available, you will have to choose between a CEX and a DEX.
Right Pair
As previously reported, several exchanges offer the option to trade fiat for Bitcoin, but some can only deal in crypto. ‘Pairings' are a common feature of exchanges. These pairings are often abbreviated, so if you don't know the abbreviations, you might have a hard time figuring out what they're talking about.
Liquidity
The ease with which a market can be traded is referred to as liquidity. For example, high liquidity indicates that the market currently has a large number of buyers and sellers. This is usually a good thing, since more liquidity means better market discovery and quicker transaction completion.
Security
When it comes to selecting the right cryptocurrency exchange for your needs, security is crucial. If you don't know anything about how to secure your cryptocurrency, for example, you should look for an exchange that can provide a high level of protection. If you are the polar opposite and are confident in your ability to secure your crypto, you may prefer to handle your protection on your own.
Cold storage and deposits: If you don't have access to cold storage, look for a trading platform that does. Cold storage is a term used to describe a location where cryptocurrency is kept out of the hands of hackers. This is one of the most effective ways to keep your money secure.
Since it adds an extra layer of security to exchanges and cryptocurrency wallets, two-factor authentication (2FA) is widely used. Consider re-evaluating an exchange if it does not have two-factor authentication.
Encryption and authentication of emails: This is useful for protection because any transaction will be confirmed by an email sent to your account. However, it is strongly advised that you do not connect your personal email to an exchange because your personal email could be hacked. Create a new, stable one instead.
Hacks have happened and even the largest exchanges have been hacked. This is unsurprising in a technologically driven world. However, make sure that the exchange you choose to use has a good reputation. This is because, if the exchange is found to be at fault for a hack, users will be compensated. However, do not demand compensation if you lose your crypto and it is completely your fault (due to a lack of proper precaution).
Trading fees and ease of use
Trading fees play a big role in determining which cryptocurrency exchange is best for you. Low transaction fees on buying and selling are ideal because they help to protect the margins from being eaten away. If you're a daily trader, this is particularly true. Make some comparisons between various exchanges to get a sense of the fees that are available.
Finally, the ease of use of an exchange might make or break your decision. If you're a novice, a simple interface is preferable, whereas more experienced traders can prefer more complex interfaces. If you are a novice, pick an exchange with a user-friendly interface and experiment with a small amount of money before you get the hang of it. Then you might possibly move on to a more complicated exchange.
Remember that trading in any capacity, but especially with crypto, is risky. Make sure you're comfortable with the choices you make because you're the one who has to live with them.
