The world of cryptocurrency has gained immense popularity, especially among Generation Z. Crypto exchanges have been a hot topic of discussion within the crypto community for several months. However, the recent failures of multiple crypto exchanges and lending companies have left investors skeptical about whom to trust.
The growth of DeFi (Decentralized Finance) has been remarkable, with only a decade separating the rise of Bitcoin and other altcoins. Investing in cryptocurrencies comes with its fair share of pitfalls, with the biggest one being the volatility of the sector. Prices are determined solely by sentiment and not by the underlying value of the asset. This raises the question of who can be trusted to manage funds in the midst of the many risks present in the crypto market.
When it comes to crypto exchanges, there are generally two types: centralized and decentralized. Each category has its own advantages and disadvantages. There are nearly 600 cryptocurrency exchanges globally where investors can trade Bitcoin, Ethereum, and other digital assets. However, the costs, quality, and safety of these exchanges can vary greatly.
Decentralized crypto exchanges (DEX) distribute the responsibility of facilitating and validating crypto trades among participants in the network. This promotes transparency and accountability, similar to how cryptocurrency blockchains function. However, DEXs are often less user-friendly compared to centralized exchanges (CEX). For example, DEXs may not allow users to deposit dollars and swap crypto or use a centralized exchange to acquire cryptocurrency for use on a DEX.
Using a DEX may also involve peer-to-peer transactions, which can take longer to find a buyer for what you’re selling. In addition, if there is limited liquidity, you may have to accept price concessions to quickly buy or sell low-volume cryptocurrencies.
CEXs, on the other hand, are operated by a single entity and facilitate entry into crypto trading by allowing users to transfer fiat currencies directly into cryptocurrencies. The majority of cryptocurrency trading occurs on centralized exchanges. However, some crypto enthusiasts oppose centralized exchanges as they go against the decentralized nature of cryptocurrencies. There are also concerns about hacking and the security of assets held on centralized exchanges.
To address these concerns, centralized exchanges have increased security measures in recent years, such as storing customer assets offline and purchasing insurance to cover losses in case of a hack. Users can also lower their risk by transferring their crypto to a hot or cold wallet located off the exchange.
When choosing a crypto exchange, there are several factors to consider. Apart from fees, it’s important to consider security, trading volumes, available instructional materials, and whether the exchange lists the cryptocurrencies you’re interested in. Security is particularly crucial as hackers target popular exchanges. Spreading crypto purchases across various exchanges can help reduce risk exposure.
For investors in the United States, some of the best crypto exchanges include Coinbase, Kraken, Binance.US, and Gemini. These exchanges offer a range of services and have implemented security measures to protect user assets. It’s important to do your own research and consider factors such as available coins, daily trading volume, and location accessibility when selecting the best exchange for your needs.
Crypto apps also play a significant role in the crypto market, providing users with the ability to conduct transactions and monitor prices in real-time. Some of the best crypto apps in the United States include Robinhood and eToro, which offer a range of financial products and a user-friendly interface.
In conclusion, while there have been failures and risks in the crypto market, there are still trustworthy exchanges and apps available. It’s important to conduct thorough research and consider various factors before choosing an exchange or app to ensure the security of your investments.