What are the different types of crypto exchanges?

Crypto exchanges come in three types: centralized, decentralized, and hybrid.

Centralized Exchange (CEX)

Centralized exchanges are the most common and traditional type of crypto exchange. They are owned by private companies and offer investors a platform to trade cryptocurrencies. Such exchanges have high trading volume and liquidity and a large number of trading pairs.

Centralized exchanges are often considered a good option for new crypto traders because of their better onboarding and user interface, availability of customer support, and insurance in case the platform’s systems fail.

The main problem with such exchanges is that users are naturally more vulnerable to hacking attacks. Some users feel uncomfortable sharing their personal data in the KYC process.

Decentralized Exchange (DEX)

Decentralized exchanges follow in the spirit of Bitcoin with no central point of control. The servers of this type of exchange are spread over computers located all over the world, which means that if one computer is attacked, the network continues. This alone lures many users who fear losing their crypto due to a security flaw in a company’s trading platform.

Where centralized exchanges act as brokerages, decentralized exchanges are like markets. They facilitate peer-to-peer trading and have a less stringent registration process. Major drawbacks of decentralized exchanges include low trading volume, small liquidity, generally poor user interface, and lack of customer support.

Hybrid Exchange

Hybrid Exchange is part of a new generation crypto trading platform that aims to provide the best of both worlds. They aim to overcome the limitations of older exchanges by providing the greater efficiency and liquidity of centralized exchanges with the security benefits of decentralized exchanges.

Hybrid exchanges boast fast transaction speeds without compromising the privacy of their users but are still a relatively new development in the crypto world. Time will tell if they will succeed or struggle due to high costs, limited scalability, and limited resources.

Understanding Crypto Exchange Fees

Crypto exchanges charge several fees and it is not always clear what exactly you will be charged for.

There are two main types of fees to look out for: trade fees and network fees.

Exchange fees are how crypto exchanges make money. In other words, they include service fees which include:

Trading fees, charged at the time of trading, are also called “maker/taker” fees. Trading fees indicate whether a crypto order provides liquidity to the market. These also apply when converting currencies.

Deposit fees are charged when users add money to their account, usually via debit card, credit card, or PayPal rather than direct bank transfer.

Withdrawal fees are charged when withdrawing regular fiat currencies or cryptocurrencies from your account.

Account fees are charged regularly, usually monthly.

Network fees are paid to cryptocurrency miners, who process and secure crypto transactions on the blockchain. Many centralized crypto exchanges bear this cost, although some may charge higher miner fees to speed up their users’ transactions. Users of decentralized exchanges usually have to pay for it themselves, since there is no third party between them and the crypto miners.