What is an Exchange

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Exchange in the ordinary sense implies giving something valuable in exchange or in return for another thing of equal value. This means there are parties involved in this transaction, it could be directly between the buyer and the seller or through a middle man who oversees the transaction.

In the crypto ecosystem exchanges play a very crucial role in crypto transactions, they are required for trading assets. These platforms allow users to exchange their cryptocurrency for other tokens or fiat. An exchange is like a digital meeting point or market place connecting buyers to sellers and vice versa.

To facilitate trade some exchanges accept credit cards, back transfers and other form of digital payment method, they also serve as middle men for regulating transactions. Exchanges may have in built wallet for storage of cryptocurrencies thus facilitating deposit and withdrawals to other exchange.

This does not make exchanges digital wallet they are different. Digital wallet are only for storing cryptocurrencies while exchanges are for trading cryptocurrencies and also converting cryptocurrencies for other cryptocurrencies or fiat. In general an exchange is allows traders to buy and sell digital assets using cryptocurrencies or fiat currency.

There are two types of exchange:

i. Centralized Exchange:

These are exchanges which serve as middle men or a third party to help conduct cryptocurrency transactions e.g Binance Exchange, Huobi Exchange, Kucoin etc.

ii. Decentralized Exchange:

Are those exchanges that are without a middle man or intermediary party to facilitate transaction. Rather buyers and sellers trade directly P2P, e.g Stellar DEX, Solo Dex etc

Discuss briefly centralized exchanges and its benefits to crypto users

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Centralized Exchanges are institutions that organize or co-ordinate trading of cryptocurrency on a very large scale. They are directly involved in the markets by matching buyers and sellers, these exchanges serve as intermediaries between the parties involved in a trade, thus they are highly involved in regulating the market.

Centralized Exchanges also have in built wallet for the storage of crypto assets and requires that cryptocurrencies be deposited into the exchange wallet before they can be traded. These assets are safe guarded and protected by the exchange who posses the private keys of the wallet.

This gives them absolute control over assets deposited into these wallets and they can block users from accessing their funds on suspicion of malicious acts it fraud.

Centralized Exchanges are characterized by high volume of liquidity making buying and selling easy and faster, they also feature a friendly Graphic User Interface(GUI) unlike decentralized exchanges making it easier for users to maneuver their way around the platform. Centralized Exchange also supports different kind of trades like

Margin Trade,

Spot Trade and

Futures Trade.

To make use of Centralized Exchange a form of verification is required, this is known as Know Your Customer (KYC). This is usually for identification purposes and reduce the risk of bots and fraud. Due to the centralized nature of these exchanges they are highly regulated.

Some Centralized Exchange also supports P2P trading but the exchanges are involved by holding the tokens in escrow until payment is made and confirmed. Errors can be reversed in centralized that is where effective customer care comes in. Centralized Exchange are easy targets for government regulations and ban.

Benefits to crypto users

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i. Centralized Exchange are security concious, they require users to identify themselves using certain verification method. The reason being to confirm such users are not bots or fraudsters, this helps to reduce scams or fraud. Centralized Exchange verify trades transacted on its platforms and they can prevent certain trade from going through on suspicion of fraud or illegality. This boost the confidence of the users, errors in trading can also be reversed.

ii. Centralized Exchange are user friendly, their graphic user interface allows user users to maneuver their way around the platform. This is very important especially for newcomers to the platform and this helps them avoid certain errors. Some platform go as far as introducing tutorial videos on how to use the platform. Avery good example of such platform is Binance.

iii. The volume of liquidity in centralized platform is very high. This is because centralized exchanges have a large number of buyers and sellers in the platform trading on a daily. They account for a vast majority of the trading volume making buying and selling very easy and fast.

Iv. Centralized Exchange allows for various method of payment such as credit card, bank transfers etc. They also allow cryptocurrencies to be exchanged for Fiat via P2P.

V. Centralized Exchange supports various forms of trading such as Spot, Margin and Futures trading. They also have in built digital wallet for storing of crypto assets.

What do you look out for when choosing an exchange to trade your crypto assets

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The first thing I look out first is the recommendation from those who have used the platform because it is better to learn from other people's experience. To get such, I go online to Google play store to check out the rating of such exchange and the review it has received.

Binance has 4.0 rating and over 50million Downloads

If the rating is high and the reviews are positive that it is a good sign.

I also look out for how friendly it's graphic user interface is. This is because as a newcomer your are easily prone to making mistakes especially when you don't have a guide. If an an exchange makes its user interface easy to understand and operate I go for it.

Customer Care or Service response is another thing I look out for. Binance has a very good customer service who are ever ready to address your issues and give you feedbacks. They also inform users of any upgrade that will akeplave and the precautions to take. They respond quickly and on time.

Do they support other forms of trading and payment method? When choosing an exchange I look out for the forms of trading it supports like Spot Margin and Futures trading as well as P2P. I also check out the method of payments they allow. I am someone that likes to have a lot of options open to me.

I also look out for the volume of liquidity which is why I go for very popular exchanges like Huobi, Binance, Kucoin etc. They have a very large user base comprising of buyers and sellers this makes trading easier and faster.

Review your favorite Centralized Exchange and explain it's unique futures

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My favorite Centralized Exchange is Binance Exchange, my experience trading on this platform has been a beautiful one. Binance Exchange is the largest centralized Exchange in the world, it is very easy to operate. Binance Exchange supports Spot, Margin and Futures trading, they also give tutorials on trading. Buying and selling cryptocurrencies on this platform is very easy and fast all thanks to the high volume of liquidity. It ako supports an in built wallet for storing cryptocurrencies. Binance is very flexible and are always up to date, it launched its own NFT Market place for trading Jpegs. It is a very good exchange I highly recommend.

Three Unique features of Binance

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Binance allows users to stake their token by locking it up for a certain period of time to yield interest in it. This is like a passive income, using your token to make money.

To do this you click on the staking section. Select the token you want to stake, put in the amount and click stake.

It is a very simple and easy process.

Binance also supports P2P for trading of cryptocurrencies for Fiat or other cryptocurrencies. On P2P one can find buyers and sellers of required tokens.

While trading on P2P you must be a verified user, you must check the rate favourable, the successful trading rate of the seller or buyer, the amount he is willing to sell.

Binance has an in built wallet for storing cryptocurrencies. There are more than 20 different cryptocurrencies that can be stored on Binance for trading.

To deposit cryptocurrencies on Binance, you select the token, click on deposit and copy the wallet address.

To withdraw after selecting the token, click on withdrawal and put the wallet address where you want to transfer the token, put in the amount of token and click send.

Is there anything about your favourite exchange you will like to be changed

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The only thing about Binance that I will like to be changed is the minimum of town you can use to purchase a token. Let's say if you want to use USDT to purchase a token, you are required to use more than 10 usdt which is around 5,600 naira in my local currency. This is quite expensive.

If you intend using BNB to do the purchase it requires 0.05 BNB which is 21USDT or 11,600 Naira in my local currency unlike in Kucoin where you can use as low as 1 USDT which is 560naira.
This change will make it easier for people with little finance to invest in cryptocurrency.

Shortcomings on centralized exchanges

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i. They easily prone to hacks and security breach this endangers people's finances and sensitive information which centralized exchanges demand from their users. When such information falls into the wrong hands this can be very dangerous. This is why a lot of people shy away from centralized exchanges due to privacy concerns

ii. Centralized Exchange are heavily regulated by government institutions and the organization themselves making them easy targets for government ban and thus they can operate on certain countries.

iii. Parties do not have absolute control over their funds, this is because centralized exchanges are in possession of the users private keys. They can prevent users from assessing their funds. Thus uses out all their trust in the exchange operators which is very risky.

How do you think users funds can be protected since we don't have access to our wallet private keys?

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The main reason for creating cryptocurrency was to give people freedom to control their finances without middlemen or government controlled institutions like the banks. Private keys are set of codes that gives a user absolute control over his funds and if this key falls into the wrong hands game over. For the supposed better security and recovery reasons centralized exchanges hold this key in trust. But when a centralized exchange is hacked the user is left unprotected and this defeats the claim of security. So the best option is to store cryptocurrency in decentralized wallets where one has absolute control of his funds and becomes responsible for his or her own security.

Conclusion

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Exchanges play a very important role in cryptocurrency transactions and like earlier mentioned there are Decentralized and Centralized Exchange each with its own advantages and disadvantages. However before going for any exchange it is important you research such exchange to know whether it suits your taste. To me I prefer using Centralized Exchange because it is user friendly and trading on centralized exchange is like ABC. Thank you ryoto academy I really enjoyed writing on this topic.