What is a Crypto exchange?
A crypto exchange is a platform for buying and selling cryptocurrencies. Exchanges usually allow the exchange between different cryptocurrencies at the market exchange rate, minus their commission and that of the network in which they operate. Among the leading exchanges today, we can highlight Binance, OKX, Huobi and Latamex, with portfolios exceeding 300 cryptocurrencies.
Types of Crypto Exchanges
Crypto Exchange platforms facilitate the buying and selling of digital assets based on daily market prices. They often charge fees for transactions. If you buying cryptocurrencies using fiat (traditional) money, then the exchange is also known as fiat on ramp or fiat gateway. Latamex is an example of an exchange in Latam where you can buy and sell cryptocurrencies and pay with local currency using a bank transfer.
Exchanges can be also categorized according to their level of decentralization:
- Custodian exchanges: Custodian is synonymous with a custodian, so the concept is simple: custodian exchanges have the right to store your cryptocurrencies. This does not imply that the exchange is the owner of your assets, but it does imply that you will not be able to access your funds unless the custodian allows you to do so. In addition, they validate the user's identity and manage their data as a protective measure.
- Non-custodial exchange: Non-custodial exchanges offer the same advantages as custodial exchanges, with less risk of losing your funds. The user will transfer to the company only what is necessary for the exchange and will always retain control of their funds. Therefore, even if the platform is compromised, your cryptocurrencies and/or traditional money will be safe in your wallet or bank account. Latamex is a non-custodial fiat-crypto exchange, for example. It needs to validate the user's identity to avoid money laundering. If exchanges trade crypto for crypto, it would not even be necessary to verify the user's identity; they only request the funds agreed for the exchange at that moment.
- Decentralized Exchange: The “DEX” (Decentralized Exchanges)facilitate peer-to-peer cryptocurrency trading. Here, all management is done through smart contracts that eliminate intermediaries to a great extent, making them more transparent and secure. The most relevant feature is that the exchange users maintain control of their assets at all times since the confidence and management of the funds do not fall on a central figure. This adds a high level of privacy, security, and even anonymity to trading.
As seen, there are different varieties of crypto exchanges, each with its pros and cons. As always, the final choice remains in the hands of the user, who will be free to select according to his needs. You should consider your individual financial goals and risk tolerance when making decisions about which exchange to use. At the same time, increasingly large companies, SMEs, and micro-enterprises are accepting cryptocurrencies as a valuable asset, opening the doors to a new economic dynamic that is just beginning.