I have seen people on different forums asking about the best cryptocurrency exchange method. To beginners, it’s a reoccurring question, but then the savvy investors and the trading expert, it’s no longer a problem.
There are different methods and approaches to converting or exchanging your crypto, and i will be doing justice to the most straightforward ones in the later section of this article; keep reading.
Before we go further,
What is Cryptocurrency?
It’s a technology, an investment opportunity, and a new way of looking at money. When people say “crypto,” the meaning depends on who the person is and how they view cryptocurrencies.
How Does It Work?
The word “crypto” refers to the encryption provided by all modern digital currencies. Cryptocurrencies like Bitcoin and Dogecoin have value because people pay to buy them. Crypto can then be exchanged for goods, services, or government-issued currencies like euros.
Most people acquire cryptocurrency by buying or selling coins and tokens online from exchanges and accepting cryptocurrency as payment. Some earn crypto coins using their computers to validate transactions on the blockchain. Performing these calculations is rewarded with newly minted coins in a process called mining.
When Satoshi Nakamoto created the bitcoin, the source code set an arbitrary limit on the number of bitcoins that could be minted. In the case of Bitcoin, this is 21 million. At the beginning of 2021, only around 2.4 million bitcoins were left to be created and circulated.
Cryptocurrency introductions always include the word “blockchain.” A blockchain is a database that enables cryptocurrency transactions. Although blockchains and cryptocurrencies have been intertwined, they are different. Blockchain architecture can be used for many purposes besides virtual currency. And digital currencies do not need to be implemented on blockchains. However, the world’s current cryptocurrencies are based on blockchains because the blockchain architecture offers unique technical advantages. Any digital currency currently traded is a blockchain cryptocurrency.
The Major types of crypto-currency
Bitcoin gets all the headlines when people talk about cryptocurrencies, but there are literally thousands of other options when it comes to these digital currencies. In fact, cryptos that aren’t Bitcoin are usually considered an “also ran” – what is called “altcoins,” or alternatives to Bitcoin.
While Bitcoin was the first significant cryptocurrency to enter the market (debuted in 2009), many others have grown in popularity, albeit not to the same extent as the original.
Here are the world’s most significant cryptocurrency coins in alphabetical order (Data is from CoinMarketCap.com, as of August 25, 2022.)
- 1. Bitcoin (BTC)
- Binance Coin (BNB)
- Binance USD (BUSD)
- Cardano (ADA)
- Dogecoin (DOGE)
- Ethereum (ETH)
- Polkadot (DOT)
- Shiba Inu (SHIB)
- Tether (USDT)
- USD Coin (USDC)
How to exchange cryptocurrencies?
For non-technical users, these are the three most commonly used cryptocurrency exchange methods: OTCs, centralized and decentralized exchanges. Let’s take a look at their pros and cons.
Centralized Cryptocurrency Exchange Method
As the popularity of cryptocurrencies has increased significantly in recent years, many centralized exchanges appear to be catering to the demand. Typically, they compete with each other on the number of trading pairs. When exchanging cryptocurrencies, a trading pair allows you to trade at a reduced cost or even for free.
However, this variety has its price. The target group of such exchanges consists mainly of traders. Which makes the platforms adjust their offerings accordingly and doesn’t make it easier for the everyday folks to get involved.
The disadvantages of the centralized cryptocurrency exchange method are as follows:
- Complicated interface. An unprepared user can easily get lost in the abundance of indicators, graphs, orders, and other elements.
- Fees, fees, and more fees. To make a simple transaction and exchange one cryptocurrency for another, you must pay at every step of your journey, from deposit to final withdrawal. Although centralized exchanges tend to be explicit about their terms, their opaque nature leaves much room for manipulation. So you may never know how much money you will have within your wallet.
- It has a complicated KYC procedure. With some exchanges, the verification process is quite tricky. It can take days, weeks, or even months for a new user to receive their account verification.
- Price fluctuations. Since the volatility of cryptocurrencies is relatively high, the price of an asset can change even in a short period when you make a transaction. Your order may not be complete, and you must repeat the process to complete the transaction.
- Regional Restrictions. Since cryptocurrencies are still mainly in the gray area, many regions ban exchanges. So finding a platform that operates in your area can be a challenge.
Decentralized Exchanges Method
Invented primarily as an alternative to centralized exchanges, DEXs have overcome some of their problems.
They do not require verification as funds are transferred between users’ wallets. Being “decentralized,” they are not dependent on any central server and are accessible anywhere in the world.
However, the decentralized cryptocurrency exchange method also has some disadvantages:
- Low liquidity The popularity of decentralized exchanges is inferior, negatively affecting their liquidity. It will be a big challenge if you want to exchange a large sum.
- A small selection of assets. Typically, DEXs attract projects with insufficient budgets to list on major centralized exchanges. The variety of coins available for trading there is relatively small. In most cases, these assets are not very well known to the general public.
Over-the-counter exchanges, or OTCs for short, are perhaps the easiest cryptocurrency exchange method for a non-technical user. Typically, they are integrated with centralized exchanges via API, offering users a simple interface without all that confusing noise.
Disadvantages Of OTCs Cryptocurrency exchange method
- Opacity. While OTC transactions are settled through centralized exchanges, the entire process remains completely opaque. Users may never know the final exchange rate and become victims of manipulation.
- The worst course. Ultimately, since the OTC providers add fees to each transaction, the price would be much worse than centralized exchanges.