What is a cryptocurrency exchange?

Cryptocurrency exchanges have seen a huge boom in popularity over the last few years along with the  exponential growth of cryptocurrencies.

While you might know of cryptocurrencies as "digital currency" you'd logically think that a cryptocurrency exchange would simply be a place to buy and sell crypto. And you'd be right. 

But let's dig a little deeper.  

What is a cryptocurrency exchange?

Crypto exchanges provide a way for traders to access the current market prices of various cryptocurrencies, as well as convert them back into fiat currency.

The majority also allow and encourage users to trade cryptocurrencies for other cryptocurrencies without the user having to convert it to fiat money (like USD) in the middle.  

When selecting a crypto exchange, it is important to consider your own interests and goals in order to find one that best suits your needs.

Hold on, what are cryptocurrencies? 

Cryptocurrencies are digital assets that use cryptography to secure and verify transactions. They are decentralized, meaning they are not controlled by any government or central bank.

The most popular cryptocurrency is Bitcoin, but there are many others such as Ethereum, Litecoin, Ripple, and more. 

Cryptocurrencies can be used for a variety of purposes including buying goods and services online, investing in projects, and trading on exchanges.

If you want to buy or invest in a cryptocurrency, the easiest way is to use a cryptocurrency exchange.  

Are crypto exchanges safe? 

Using a cryptocurrency exchange can be a convenient way to store and trade digital assets, but it is important to remember that it also carries significant risks.

Exchanges are often the targets of hackers, as evidenced by the Mt. Gox incident in 2014 where hundreds of millions of dollars were stolen. 

Additionally, users have found that their assets can sometimes be gone completely or locked up in bankruptcy proceedings much like in the 2022 issues with FTX.  

However, whilst there are a few nightmare stories, there are far more people out there who have used crypto exchanges and not found them to have any problems whatsoever.  

Most of the time, using a crypto exchange is pretty safe outside the volatility of price in your assets.  

however, you can take extra measures to protect yourself from many of the risks involved with trading on cryptocurrency exchanges. 

You could look into cryptocurrency insurance and you should remember the old crypto adage: “Not your keys, not your coins”. This means that if you are using an exchange and they do not give you your own wallet, then you are giving them complete control over your assets.

Therefore, it is important to take extra precautions when using a cryptocurrency exchange and make sure that you understand all of the potential risks involved before investing any money.

How do crypto exchanges work? 

They're really quite simple.

Once you  set up an account with a crypto exchange, you can use ordinary fiat currency (like USD) to buy crypto or trade one form of crypto for another.

You could also convert your crypto back into regular currency, leave it in your account for future trades, or withdraw it as cash.

All they really are is, as the name explains, an exchange.

Crypto exchanges are simply there to facilitate the trade. They often have a lot of tools and features to help you find the current prices of the asset you want to buy/sell.

Where it gets a little different is with the centralized vs decentralized exchanges. We'll get into them in more detail as the guide continues. But as a quick overview here's what you need to now.

A centralized exchange sits in between the buyer and seller and acts as an intermediary.

In these examples, we're talking exchanges like Binance.

Centralized exchanges make money through fees or commissions and you're best off thinking about them as the stock exchanges in Web3.

Decentralized exchanges have no such intermediary. They facilitate a trade between two people. As there's no intermediary, they rely on smart contract protocols to set the rules of each trade.

As there is no intermediary, they're generally for more advanced traders. Good examples of a DEX would be something like Uniswap.

What's the best cryptocurrency exchange? 

There is no one answer for this as the answer really depends on your needs and situation. 

We have a comprehensive list of cryptocurrency exchanges including real user reviews to help you make a more informed decision.  

You can use that to find detailed information on exchanges and also understand how users like the service they provide. 

However, if you're a complete newbie to the space, we also recommend you take some time to quickly read through the rest of this guide to better understand the reviews.