There is no doubt that cryptocurrencies are becoming an increasingly popular asset around the world. With every passing day, crypto is not only making its way to the public sectors but more and more people are hopping on its bandwagon to explore the new concept. One of the most significant reasons for the popularity of crypto is its usability. It is not only used for investment and trading purposes but is also used for payments and transactions around the world. This makes it an even more exciting prospect in the world of finances.
Cryptocurrency exchanges are a key player in the whole digital currency industry as they link the user sector to direct markets. Users usually use these cryptocurrency exchanges to buy, sell, trade, stake cryptocurrencies. Also, they make crypto transactions via e-wallets on these exchanges. There are a number of exchanges around the world, as users determine their credibility through KYC processes, media presence, and unassailable security hacks as well. Nonetheless, choosing from a range of Bitcoin exchanges is one of the most critical steps in one's trading and investing career.
What is the difference between a centralized and a decentralized exchange?
The whole crypto and blockchain industry generally stands on the concept of decentralization and anonymity of users. Blockchain technology aims at distributing power instead of concentrating it on a single central authority. However, still there is a mix of centralized and decentralized cryptocurrency exchanges in the market.
The centralized exchanges directly contradict the train of thought behind blockchain technology, but it still attracts a considerable percentage of users to its system. A centralized exchange is full of security risks as a single entity holds the major portion of power in the exchange. A mistake at the end of a centralized exchange could prove to be highly costly for its consumers. Platforms like Binance, Coinbase, and Kraken are the most popular centralized cryptocurrency exchanges in the market. However, succumbing to a lot of pressure from the user sector many of these exchanges are working on their decentralized projects as well.
On the other hand, decentralized exchanges work on a peer to peer protocol and its system works on independent nodes. Thus, in case of a single failure, the exchange maintains its composure and stability to function without any inconvenience. Stellar DEX, Bisq, and IDEX are a few popular names of decentralized crypto exchanges in the market. Even though both types of exchanges have their pros and cons, the decentralized version of an exchange is the closest to the proposed blockchain model in the crypto realm.
How to determine the credibility of a cryptocurrency exchange?
There are certain critical points to consider while opting for a cryptocurrency exchange. Firstly, the users should see that the exchange complies with the set security measures, and has the tendency to withstand any ransomware or cyberattacks on its protocol. Exchanges should incorporate security measures like two-factor authentication, captcha measures, anti-phishing code feature, and so on. In addition to that, exchanges with a high trading volume are considered to be more credible and reliable. Users should evaluate an exchange over its transparency and adverse media data.
Also, the users should be able to locate the geophysical location of the exchange. This gives credibility to the exchange and vows for its authenticity. Usually, reliable cryptocurrency exchanges have a high transaction fee, but it is worth the expense if the exchange guarantees premium level security to its users. Thus, users should evaluate an exchange beforehand, as it would give them a chance to opt for the most suitable option.
Crackdowns and regulations on popular exchanges around the world
Despite the increasing fame of cryptocurrencies, regulatory checks and authoritative crackdowns have gone side by side with the crypto industry. Many people believe that decentralization asks for no regulation while others believe that regulation is an indication of a mature market that will ensure the legitimate rise of crypto. However, whatever one may believe, cryptocurrencies are going through a series of regulations across the planet.
Currently, several US authorities are keeping a strict regulator check on cryptocurrency exchanges. They want these exchanges to get registered as a money service business, and that they should report to law enforcement agencies as well. Moreover, Turkey has placed a ban on the most popular exchange, Binance, and has prohibited the use of crypto as a payment mechanism. China has also acted against cryptocurrency exchanges and has passed strict laws for crypto service providers in the country. Moreover, Binance has also faced issues in Australia and has discontinued its options and futures trading options in a bid to comply with local regulations.
The crypto community has mixed opinions on these worldwide regulatory checks on crypto exchanges. However, one thing that these recent developments guarantee is that crypto is making its way into the mainstream world of finances, and it surely has become a force to reckon with at the global level.