Cryptocurrency Exchanges

Platforms that facilitate the trading of cryptocurrencies for other assets, including digital and fiat currencies

What are Cryptocurrency Exchanges?

Cryptocurrency exchanges are platforms that facilitate the trading of cryptocurrencies for other assets, including digital and fiat currencies. In effect, cryptocurrency exchanges act as an intermediary between a buyer and a seller and make money through commissions and transaction fees.


Cryptocurrency Exchanges


On common cryptocurrency exchanges, $100 can be exchanged for bitcoin of equivalent value, and vice-versa. Similarly, bitcoin worth $100 can be exchanged for Ethereum of equivalent value. The same concept can be applied to different assets based on what is offered by the exchange.


Centralized vs. Decentralized Cryptocurrency Exchanges

Centralized cryptocurrency exchanges act as a third-party between a buyer and a seller. Since they are operated and controlled by a company, centralized exchanges offer more reliability. Approximately 99% of all crypto transactions go through centralized exchanges. Examples of centralized cryptocurrency exchanges include:

  • Coinbase
  • GDAX
  • Kraken
  • Gemini


Decentralized cryptocurrency exchanges (DEX) allow users to execute peer-to-peer transactions without the need for a third party or an intermediary. Due to some of the issues associated with centralized exchanges, decentralized exchanges are preferred by some users.

However, decentralized exchanges do not facilitate the trading of fiat currencies for cryptocurrencies. Examples of decentralized cryptocurrency exchanges include:

  • AirSwap
  • io
  • Barterdex
  • Blocknet


Advantages of Centralized Cryptocurrency Exchanges


1. User-friendly

Centralized exchanges offer beginner investors a familiar, friendly way of trading and investing in cryptocurrencies. As opposed to using crypto wallets and peer-to-peer transactions, which can be complex, users of centralized exchanges can log into their accounts, view their account balances, and make transactions through applications and websites.


2. Reliable

Centralized exchanges offer an extra layer of security and reliability when it comes to transactions and trading. By facilitating the transaction through a developed, centralized platform, centralized exchanges offer higher levels of comfort.


Disadvantages of Centralized Cryptocurrency Exchanges


1. Hacking risk

Centralized exchanges are operated by companies that are responsible for the holdings of their customers. Large exchanges usually hold billions of dollars worth of bitcoin, making them a target for hackers and theft.

An example of such an incident is Mt.Gox, which was once the world’s largest cryptocurrency exchange company before it reported the theft of 850,000 bitcoins, leading to its suspension.


2. Transaction fees

Unlike peer-to-peer transactions, centralized exchanges often charge high transaction fees for their services and convenience, which can be especially high when trading in large amounts.


Advantages of Decentralized Cryptocurrency Exchanges


1. Mitigating hacking risk

Users of decentralized exchanges do not need to transfer their assets to a third party. Therefore, there is no risk of a company or organization being hacked, and users are assured of greater safety from hacking and theft.


2. Preventing market manipulation

Due to their nature of allowing for the peer-to-peer exchange of cryptocurrencies, decentralized exchanges prevent market manipulation, protecting users from fake trading and wash trading.


3. Anonymity

Decentralized exchanges do not require customers to fill out know-your-customer (KYC) forms, offering privacy and anonymity to users.


Disadvantages of Decentralized Cryptocurrency Exchanges


1. Complexity

Users of decentralized exchanges must remember the keys and passwords to their crypto wallets, or their assets are lost forever and cannot be recovered. They require the user to learn and get familiar with the platform and the process, unlike centralized exchanges, which offer a more convenient and user-friendly process.


2. Lack of fiat payments

Decentralized exchanges do not allow for the trading of fiat currencies for digital ones, making them less convenient for users that do not already hold cryptocurrencies.


3. Liquidity struggles

Some 99% of crypto transactions are facilitated by centralized exchanges, which suggests that they are accountable for the majority of the trading volume. Due to the lack of volume, decentralized exchanges often lack liquidity, and it can be difficult to find buyers and sellers when trading volumes are low.


The 10 Best Cryptocurrency Exchanges, Ranked by Volume


Top Centralized Exchanges

The following are the top centralized cryptocurrency exchanges, according to traffic, liquidity, and trading volumes.

  1. Binance
  2. Huobi Global
  3. Coinbase (Pro)
  4. Kraken
  5. Bithumb
  6. Bitfinex
  7. Bitstamp
  8. KuCoin
  9. FTX
  10. bitFlyer


Top Decentralized Exchanges

Below are the highest-ranked decentralized cryptocurrency exchanges, according to traffic, liquidity, and trading volumes:

  1. Uniswap (V2)
  2. Tokenlon
  3. 0x Protocol
  4. Venus
  5. Sushiswap
  6. Compound
  7. BurgerSwap
  8. Curve Finance
  9. 1inch Exchange
  10. PancakeSwap


More Resources

CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Bitcoin Mining
  • Fiat Money
  • Transaction Costs
  • Virtual Currency

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!