Blockchain and Cryptocurrency emerged to solve the flaws and the issues encountered with the current traditional economic and financial system. This is by providing a decentralised, widely accessible, digital, and secure alternative to fiat currency.
The rise of decentralisation subsequently enabled the rise of Exchanges or Marketplaces. They work to enable the buying and selling of crypto assets between users in the crypto ecosystem; thereby replacing traditional financial exchanges like New York Stock Exchange and London Metal Exchange.
Binance, Kraken, CoinEgg, Gemini, and are examples of centralised digital marketplaces where you can buy and trade digital assets. Centralised crypto exchanges create a marketplace that acts as an intermediary between buyers and sellers. The intermediaries are the central body that manages, operates, and controls the transactions on the Exchange.
Centralised exchanges enable users to trade their fiat currency for a cryptocurrency (or vice versa) or even between two different cryptocurrencies.
Vital Elements of Centralised Exchanges
There are hundreds of centralized exchanges in the crypto world, with new ones coming up. However, the crypto world has seen many of these exchanges stop operation.
The success and failure of an Exchange depend on some of its features; the following are some of the features of Centralised Exchanges you have to check before choosing one.
Trading Volume
Trading volume of an exchange refers to the number of transactions running on the Exchange daily. The higher the trading volume, the lower the chance of volatility and market manipulation.
Volatility is a widespread issue during exchanges; because some centralised exchanges take time for transactions to be completed, the price of a given token might change between the time of initiating and completing the transaction.
So, the higher the number of transactions running on an exchange and the faster the process time, the lesser the chance of volatility.
Security
No exchange is immune to hacks, threats, and other malicious activities. While some are safer than others, security is crucial for a centralized exchange.
Also, the reactionary action taken by different exchanges to these attacks and threats is a distinguishing feature in centralised exchanges. While some might work hard to refund customers’ losses, others might shut down due to the attacks.
For a trader, investor, or any crypto enthusiast looking to enter the crypto space, a centralized exchange is still the simplest and most common.
The elements mentioned above are the critical differences between numerous centralized exchanges in the crypto market. It is essential to consider other factors like enabled pair trade, accessibility, user-friendly experience, etc.
Factors to Consider Before Choosing a Centralised Exchange
Trading/Gas Fees
This is essentially one of the most important factors to check before choosing an exchange. Gas fees refer to a fraction of your asset that gets deducted during trading.
While some exchanges charge the fees according to the frequency of transactions, some have already established a baseline fees. It is essential to check the trading fees of any crypto exchange before trading on it.
Availability in Locality
Not all centralised exchanges are available in all countries. This may be due to regulations on crypto market in such countries.
For example, Binance halted its operations in Malaysia and suspended margin trading and derivatives offerings in a few European countries. So before choosing an exchange, check to see if it is operating in your country.
Availability of Crypto Assets
While most centralised exchanges allow the transactions of widely recognized cryptos such as Bitcoin, Ethereum, Litecoin, and Dogecoin, a few trade lesser-known cryptos.
Therefore, before choosing an exchange, you should check whether the Exchange allows trading a particular rypto against your fiat currency.
Reputation and Popularity
Run a background check on any exchange you wish to choose and check to know if it has been hacked before or not. Various new exchanges are victims of breaches and hacks, so it’s essential to go for a trusted and secure exchange.
If an exchange has been hacked before, it is important to know how such an exchange was able to deal with menace. Also, before choosing an exchange, read the reviews and ratings of the exchange on public forums, so as to know the opinions of others on it.
Conclusion
It is essentially to perform due diligence on any exchange before you engage with it. Check for associated fees, security and availability. This will guarantee the safety of your fund and ensure tangible return on your investments.
