Broadly speaking, there are two categories of cryptocurrency exchanges: centralized exchange and decentralized exchange. Each category has its own advantages and disadvantages.
centralized exchange
A centralized crypto exchange (CEX) is managed by one organization. Centralized exchanges make it easy for users to start trading cryptocurrencies by allowing them to convert fiat currencies such as dollars directly into cryptocurrencies. The majority of cryptocurrency trading takes place on centralized exchanges.
Some crypto enthusiasts oppose centralized exchanges as they go against the decentralized philosophy of cryptocurrencies. Even worse in the eyes of some cryptocurrency users, companies or organizations may require users to follow know-your-customer (KYC) rules. These require each user to identify themselves, just as they would when applying for a bank account, to combat money laundering and fraud.
There is another concern with centralized exchanges. That's hacking. With CEX, exchanges hold the cryptocurrencies traded on their platforms in the short term, at least while the trades are taking place, increasing the risk that hackers can steal the assets.
To address this risk, centralized cryptocurrency exchanges have strengthened their security in recent years. Among other strategies, they now store most of their customer assets offline and have insurance that covers loss of cryptocurrency in case of hacking.
If you like the convenience of a centralized exchange, you can reduce your risk by transferring your cryptocurrencies to another hot or cold wallet outside of the exchange.
decentralized exchange
Decentralized crypto exchanges (DEXs) decentralize the responsibility for facilitating and validating crypto transactions. Anyone who wants to join the DEX network can authenticate transactions, similar to how a cryptocurrency blockchain works. This could not only increase accountability and transparency, but also help ensure the continued viability of exchanges, regardless of the status of the companies that created them.
The problem is that decentralized exchanges are very difficult to use, not only from an interface standpoint, but also from a currency conversion standpoint. For example, decentralized exchanges do not always allow users to deposit dollars and exchange them for cryptocurrencies. This means you must already own the crypto or use a centralized exchange to acquire it and use it on a DEX.
There is also the possibility of directly participating in peer-to-peer transactions. This can take time to find someone who is looking to buy what you are selling, and if liquidity is low, you may be given price concessions to quickly buy or sell small amounts of cryptocurrencies. It means you may have to accept it.
Global cryptocurrency exchange
There are approximately 600 cryptocurrency exchanges around the world, inviting investors to trade Bitcoin, Ethereum, and other digital assets. However, cost, quality, and safety vary widely. Forbes Digital Assets has ranked the top 60 crypto exchanges in the world with a focus on regulatory compliance.
