Cryptocurrency exchanges are payment processors or gateways that allow trading cryptocurrencies for fiat or digital currencies. To start sending or receiving cryptocurrencies, we will need cryptocurrency exchanges as a medium.
For example, Suissebase is a private digital exchange platform that allows business clients to deposit or withdraw crypto in the EU with bank accounts for high net worth. There are two kinds of cryptocurrency exchanges and each one has its set of pros and cons.
CEX or Centralized Cryptocurrency Exchange
CEX is an intermediary between seller and buyer. It makes income via transaction fees and commissions. CEX resembles a stock exchange but is designed for digital assets. There are many crypto exchanges focused on allowing cryptocurrency investors to trade digital assets at spot price or leave orders, which get executed when the asset’s value reaches the target price [limit orders].
Pros
User-friendly
Crypto investors can use crypto wallets or Peer-to-peer transaction methods but opening a CEX trading account is simple. They can check their account balances and use apps to make transactions on the go.
Reliable
CEX transactions and trading are more reliable and secure.
Leverage
Leverage margin trading by borrowing cryptos from the exchange. The returns can be high but so can the losses if the price moves against your prediction.
Cons
Hacking risk
CEX owners are responsible for their customer’s crypto asset holding. Cryptos worth billions are usually stored on large exchanges, which attract hackers. Mt. Gox is a perfect example of the stealing of 850,000 BTC that led to its downfall.
Transaction fees
CEX transaction charges are high due to their convenience and services. The fees can escalate when you trade in large amounts.
Digital asset custody
CEX hold digital as a custodian in their digital wallet. It is convenient but the risk is CEX hacking or collapse or fraud. Suissebase is not just a payment gateway and custodian for cryptocurrency but it is also a digital bank that offers banking facilities.
DEX or Decentralized Cryptocurrency Exchanges
DEX allows P2P transactions from your wallet directly without the need for an intermediate. DEX depends on self-executing coding on the blockchain or smart contracts. It allows more privacy and security than CEX.
Pros
Custody
DEX users don’t interact directly with corporations, but rather with smart contracts.
Less censorship
DEX doesn’t need users to fill out KYC forms, which means anonymity and privacy to users. DEX doesn’t exercise restrictions, so you gain access to more digital assets and cryptocurrencies.
Cons
Complexity
There is a high risk of losing passwords or keys to your crypto wallets, which means you lose all your cryptos. There is a learning curve in using the DEX platform.
Lack of fiat currency payment
DEX is great for those looking to switch from Bitcoin to Ethereum or one digital asset to other. It is not for investors who plan to sell or buy cryptos with fiat currency.
Liquidity struggles
CEX exchange facilitates 99% of the crypto transactions, so they are liable for the significant trading volume. Because of insufficient liquidity in certain DEX, traders might face a high price impact when trading high amounts. This means that they would receive a lot lesser cryptocurrency from the swap.
Suissebase is the best option because it allows high liquidity, which allows investors to trade in large volumes.