Different Types of Crypto Exchanges

If you’ve just gotten into the crypto market, it’s completely normal to feel a bit overwhelmed when picking the right exchange. With so many options out there, each offering cool perks and features, it’s no wonder your head’s spinning. Let’s take a step back and break down the different types of crypto exchanges to help simplify your decision.

Trust me, understanding these differences is more important than you think. Not all exchanges are created equal, and they won’t all align with your trading needs. While major players like Binance, Bybit, and Kraken are often the go-to choices, there’s a vast ecosystem beyond these big names. Knowing what makes them unique can really enhance your experience.

So, stick around if you're serious about starting your crypto journey on the right foot. Learning about the different types of exchanges to invest in will give you a solid foundation to trade smarter, safer, and with much more confidence.

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The Two Main Types of Crypto Exchanges

Over the past decade, interest in digital assets has skyrocketed, and the crypto market has grown rapidly in response.^[1] This surge in popularity has led to many new types of exchanges that offer more than just basic transactions.

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As of writing this article, there are over 500 exchanges available on the market, each with its own special features and benefits. Some of them focus on simple cryptocurrency transactions, while others provide more advanced services like staking, pool mining, NFTs, and derivatives trading.

Despite the variety among the different exchange platforms, they can generally be categorized into two main types: centralized and decentralized. To help you make sense of it all, let’s start by discussing the former.

Centralized Exchanges (CEXs)

CEXs are the most widely used type of crypto exchange. Think of platforms like Bybit or Binance. These exchanges are run by companies or teams that manage everything, including your transactions and funds. If you’re new to crypto, starting with a CEX is a good choice.

Why are CEXs easy for beginners? First, they use an efficient order book system that makes it quick to find buyers and sellers. For example, if you want to buy Bitcoin, the platform finds someone selling it. And if you want to sell Ethereum, it connects you with a willing buyer.

Second, CEXs usually have high trading activity, leading to strong liquidity. This ensures trades happen quickly and at stable prices, minimizing the risk of sudden price fluctuations. This makes transactions smoother because there are always buyers and sellers ready to trade.

Another advantage of CEXs is their focus on user-friendly experience. Signing up is usually simple: you create an account, verify who you are, add money to your wallet, and then you can start trading.

If something goes wrong with your account or your assets, many centralized exchanges can help you recover access. By confirming your identity, they can help you regain control of your account if you lose or forget your login information—this is a great safety feature for beginners.

That said, convenience does come with some downsides. As mentioned earlier, you need to share personal information such as your name, ID, and payment details to use CEXs. On top of that, these platforms often charge higher fees for the services they provide.

Let’s put this into perspective with an example. Imagine your friendly neighbor, Jeff. He just heard about Bitcoin’s latest rally and is eager to buy his first coin. But here’s the problem—the neighbor has zero experience with cryptocurrency and no clue where to begin.

Jeff remembers how easy it was to open a bank account. The bank handled his money, processed his payments, and gave him an app to manage everything. Jeff realizes he needs that same simplicity from the types of crypto exchanges he’s looking for.

CEXs provide a similar experience. The platform takes care of everything: holding funds, matching trades, and ensuring transactions run smoothly. All Jeff has to do is sign up, upload his ID, and deposit some cash. In minutes, he’s buying Bitcoin like a pro.

This seamless process is ideal for Jeff. It’s fast and easy, and it allows him to focus on learning the basics without the complexities.

Decentralized Exchanges (DEXs)

On the other side, there are DEXs. Unlike centralized platforms, these types of crypto exchanges operate without a central authority managing everything behind the scenes.^[2]

Instead, DEXs use smart contracts to facilitate trades directly. These technologies remove the need for intermediaries, giving you more privacy and full control over your assets.

As the name implies, DEXs stay true to the decentralized ethos. You don't need to sign up, provide personal information, or create an account. All you need is a crypto wallet, connect it to the platform, and you can start trading.

This type of crypto exchange is also ideal if you’re looking for a diverse selection of coins. Since it’s easier to list new tokens on a DEX compared to a CEX, you’ll often find a broader range of cryptocurrencies. This makes DEXs an exciting place to discover unique coins or get early access to projects that haven’t yet been listed on larger exchanges.

However, with freedom comes some challenges and risks. For one, there’s no customer support. So if something goes wrong—like accidentally sending funds to the wrong wallet—you’ll need to rely on community forums or other users for help.

Another important point to consider is liquidity. DEXs usually have less liquidity than centralized exchanges.^[3] As a result, trades can take longer to execute, and there can be more slippage. This can be especially annoying when the market is very active, and you need to act quickly.

Let’s revisit our neighbor, Jeff. After months of building confidence in a CEX, he’s ready to explore different crypto exchanges to broaden his horizons. The idea of having full control over his funds and trading with greater privacy intrigues him, so he decides to try a DEX.

Jeff’s first experience isn’t entirely smooth. He has to figure out how to connect his wallet, navigate gas fees, and understand the mechanics of decentralized trading. It’s a steep learning curve initially, but over time, he starts to appreciate the autonomy.

As Jeff progresses as a trader, DEXs become his preferred type of crypto exchange due to their privacy, access to niche tokens, and the ability to manage his own funds.

Other Types of Crypto Exchanges

When discussing the different types of crypto exchanges to invest in, CEX and DEX are the main ones. But, the cryptocurrency landscape is vast and constantly changing, introducing new sub-categories or other variations that meet the different needs of all kinds of users.

Among these different exchange variations, you’ll find platforms designed for specific purposes. For instance, some specialize in lending services, others focus on derivatives trading, and some simplify fiat-to-crypto purchases.

Let’s look at some of the most popular sub-categories. Who knows—you might discover one that’s ideal for how you like to trade!

Hybrid Exchanges

Hybrid platforms aim to combine the advantages of centralized and decentralized marketplaces. On the one hand, they provide fast and efficient order matching like centralized exchanges. On the other hand, they leverage decentralized protocols to give users greater control over their assets and enhance security.

In some cases, hybrid exchanges operate within closed ecosystems. This means they offer a private blockchain system that safeguards sensitive data while using blockchain’s transparency to facilitate shareholder communication and other organizational needs.

While hybrid exchanges seem like the perfect balance, they're still relatively new. Their trading volumes are often lower than those of more established platforms, making them less liquid. Additionally, lower activity levels can leave them vulnerable to price manipulation, which could discourage users from using this type of crypto exchange.

Peer-to-Peer Exchanges

Peer-to-peer, or P2P, exchanges allow users to trade directly with one another without involving a middleman or central authority. This setup gives users full control over their transactions and can result in much lower fees—or sometimes none at all.

So, how does it work? P2P exchanges use smart contracts and escrow services to make trades safe. These tools help ensure that both parties meet their agreements. Many P2P platforms also have ways to resolve disputes if there are any problems during a trade.

Leading applications like Binance have integrated P2P trading services, supporting over 70 local currencies. This global reach makes it an excellent choice for users seeking a safe and flexible way to transact with people from different countries.

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Derivatives Exchanges

Derivatives are financial contracts based on the value of an underlying asset, in this case, cryptocurrencies. Instead of owning the actual coins, you're trading contracts that depend on how you think the price will change in the future. You can think of it as guessing where the Bitcoin price will go without actually owning the coin in your wallet.

Here are some common types of crypto derivatives:

• Futures: Agreements to buy or sell a cryptocurrency at a fixed price on a specific date.
• Options: Contracts that give you the choice, but not the obligation, to buy or sell at a set price in the future.
• Perpetual Swaps: Similar to futures but with no expiration date, allowing traders to hold positions indefinitely.

Derivatives platforms are an excellent option for seasoned enthusiasts exploring different types of cryptocurrency exchanges to invest in advanced products. These platforms cater to strategic, high-stakes opportunities for speculating, hedging risks, or amplifying potential returns.

Lending Exchanges

Lending platforms are a unique type of crypto exchange where you can lend your coins to earn interest or borrow against your holdings without selling them. I like to think of it as a service that lets you save, invest, and borrow digital assets by utilizing the power of blockchain technology.

If you have some coins just sitting idle in your wallet, lending them out is an easy way to earn passive income with minimal effort. On the flip side, if you need quick cash or want to get more cryptos, borrowing allows you to use your existing holdings as collateral without selling them.

That said, there are risks you need to consider if you want to use this type of exchange. Your funds might be locked up for a certain amount of time, which means you can’t access them in case of an emergency.

Plus, market volatility can affect the value of the assets you use as collateral, leading to liquidation if the prices drop too low.

Fiat-to-Crypto Exchanges

Fiat-to-crypto exchanges are platforms where you can convert fiat (USD, EUR, or JPY) into digital assets (Bitcoin, Ethereum, or Dogecoin). This type of application acts as a bridge that connects the familiar world of fiat money with the decentralized crypto universe.

Fiat-to-crypto platforms are very important for the digital economy ecosystem. Without them, acquiring cryptocurrency would be much more complicated.

Image trying to buy Bitcoin without ever owning any digital assets before. Relying solely on peer-to-peer trades or using complex decentralized exchanges would feel overwhelming for first-timers.

A good fiat-to-crypto platform simplifies the process by supporting a variety of fiat currencies, offering multiple payment options, and ensuring quick transaction times. Among the exchanges that provide this service, Bybit and Binance are popular choices thanks to their user-friendliness, strong security features, and overall convenience.

Those are just a few of the most popular sub-types of crypto exchanges beyond CEXs and DEXs. You might also encounter platforms tailored to specific niches, such as gaming tokens, DeFi projects, or NFTs. With the crypto landscape evolving faster than ever, who knows what innovative types of exchanges could emerge next?

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Which Type of Exchange Is Best for You?

Now that you’ve got the basics of CEXs and DEXs, along with their variations, you might be wondering—which type of exchange is right for me?

Here’s my simple advice: If you’re new or a casual trader, stick with CEXs for ease of use. But if you’re a seasoned crypto enthusiast seeking privacy and control, DEXs could be a better choice.

That said, let’s make it even clearer with a quick comparison between the two:

Table: CEX VS DEX.

Other than your experience level, there are other factors to consider when selecting the types of crypto exchanges that are right for you:

Risk Management

Think about how much control and responsibility you are okay with. CEXs help you manage your assets and keep them safe. They're also easy to use and convenient. But, this central control has its risks, such as possible hacks, failure, or bankruptcy.

On the other hand, DEXs give you full control of your money. This can feel empowering, but it also means you have more responsibility. You will need to manage your own wallet and private keys. In addition, if you make a mistake, it can be costly.

If the idea of managing everything on your own feels too much, starting with a CEX might be a better and safer choice for you.

Liquidity

In terms of liquidity, CEXs are usually better than DEXs. The former rely on centralized operators and market makers to ensure a steady flow of funds. This lets you buy and sell quickly with tighter spreads and minimal slippage, especially for popular tokens.

On the other hand, DEXs depend on community-driven liquidity pools. They are funded by users who deposit tokens in exchange for a share of the trading fees.

While this model is innovative, it often results in lower liquidity for certain tokens. This can result in bigger price differences and more slippage, especially for assets that aren't well-known.

If you prioritize fast and stable trades, CEXs are generally the better choice. But if you're willing to accept some risks for the benefits of a decentralized protocol, DEXs might offer a unique experience that could be more rewarding.

Features

CEXs are usually packed with more features than DEXs. Many offer earning programs that let you stake or lend your crypto for passive income, built-in trading bots to automate strategies, and copy trading options to follow the moves of experienced investors.

Most also provide advanced tools like limit orders and stop-loss features for precise trade execution.

Different crypto exchanges in this category put their own spin on these features, catering to diverse interests. This could include exploring NFTs, trying margin trading, or automating trades. So, If you’re seeking advanced functionality and versatility, CEXs are definitely worth checking out.

Regulatory Compliance

Since CEXs are usually run by companies, they must comply with local laws and regulations to keep operating in specific regions. This requires them to implement strict protocols like KYC and anti-money laundering measures.

If you're looking at different types of cryptocurrency exchanges to invest in and prioritize regulatory transparency, CEXs can offer a level of security and reliability that DEXs may not provide.

Token Variety

CEXs usually offer a smaller selection of tokens than DEXs. This is because these platforms conduct rigorous and often lengthy review processes before listing them. These evaluations are intended to ensure that the tokens available on their platform are safe and reliable.

In contrast, DEXs often operate with more open criteria, allowing a broader range of tokens to be traded as long as they have sufficient liquidity. This approach makes DEXs popular for discovering niche altcoins or early-stage projects that may not yet meet the strict vetting standards.

For beginners who prefer sticking to established cryptocurrencies, CEXs are a safer and more predictable choice. However, if you’re an adventurous trader looking to explore emerging or lesser-known tokens, DEXs offer unique opportunities. Just remember to exercise caution and thoroughly research the projects to avoid scams.

So, those are some of the factors to consider when choosing between CEXs or DEXs. As you gain experience in your crypto journey, you’ll likely discover your preferences and find your niche. That’s when you can explore different types of cryptocurrency exchanges to invest in, like hybrid platforms, derivatives-focused exchanges, or NFT marketplaces.

After all, there's no perfect choice for everyone. The best exchange is the one that fits your goals and needs at the moment. Keep learning and exploring, and you’ll eventually find your ideal platform among the many different options out there!

Top Picks for Each Type of Crypto Exchange

If you feel overwhelmed by the numerous platforms available and unsure where to start, don’t worry! I’ve put together some of the most trusted picks for both types of crypto exchanges. These options are highly regarded by the crypto community and should make an excellent starting point.

Top Centralized Exchanges

Here are my top three picks for CEXs that I selected based on various factors, like liquidity, reputation, security features, and ease of use:

Bybit

Bybit has quickly become one of the largest crypto exchanges in the world, and for good reason. The platform is excellent for traders who want more than basic features. It offers advanced tools like perpetual futures, margin, and a smart trading system.

The exchange is also known for being easy to use and having low fees. It can be accessed from many countries and has a reliable mobile app, allowing you to trade on the go seamlessly.

Undoubtedly, Bybit ranks among the best-centralized exchanges and is a solid starting point for anyone.

Binance

When discussing centralized exchanges, Binance is undeniably among the top picks. It's one of the biggest and most popular platforms in the world, and it offers a wide range of crypto-related services suitable for traders at any experience level.

What sets Binance apart is its emphasis on security and affordability. The platform uses advanced measures such as two-factor authentication and top-level encryption to safeguard your funds. Additionally, its competitive fee structure becomes even more attractive with discounts for paying fees using Binance Coin.

It offers versatility for those exploring different trading options. From spot and P2P trading to derivatives contracts and an integrated NFT marketplace, Binance ensures there’s something for everyone!

Kraken

Kraken has built a solid reputation as one of the most trusted brands in the community. With many years of experience, it's widely seen as a safe and reliable platform that adheres to strict regulations and compliance standards.

One of Kraken's standout features is its emphasis on security. The platform prioritizes user safety by employing advanced measures to protect both personal information and funds. Additionally, it serves as an excellent fiat on-ramp and off-ramp, making it easy to convert cryptocurrency to USD, EUR, or JPY, among others.

With competitive fees, a global presence, and a range of useful features, Kraken provides a well-rounded trading experience suitable for traders of all skill levels.

Pros

• Very low trading fees
• Exceptional functionality
• Mobile trading app

Main Features

• Very competitive trading fees
• An intuitive mobile app
• Up to 100x leverage available

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Pros

• A very well-known crypto exchange platform
• More than 500 different cryptos available
• Two-factor authentication

Main Features

• Over 500 different cryptocurrencies available
• Strong security
• Small withdrawal fees

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Pros

• Fully reserved and transparent
• Multiple tradable asset classes
• Early new token support

Main Features

• 265 supports cryptocurrencies
• Secure & transparent
• Fully reserved

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Top Decentralized Exchanges

Here are my top picks for DEXs, chosen based on factors such as trading volume, market diversity, and the variety of supported tokens. Again, I've to remind you that this type of crypto exchange tends to be more complex than centralized platforms, so take the time to familiarize yourself with how they work:

Raydium

Raydium is a notable option for those who want to explore DEXs. It combines the efficiency of automated market maker (AMM) systems with a unique order book model to deliver deeper liquidity and competitive pricing.

The platform offers features such as concentrated liquidity pools and staking. Additionally, its intuitive interface makes it an accessible and user-friendly entry point into DeFi.

That said, its limited availability in some regions could be a drawback. If you have access and are comfortable managing DeFi-related risks, Raydium offers a range of tools that can significantly enhance your trading experience.

Uniswap (V3)

Uniswap is an important part of the DeFi ecosystem. Developed on Ethereum, it streamlines token swaps while providing an intuitive and user-friendly interface.

One of the key features of Uniswap is its liquidity pools. These allow users to put their crypto holdings into a pool and earn a share of the trading fees generated on the platform. This system creates a mutually beneficial environment for both traders and those providing liquidity.

Getting started with Uniswap is also easy. You simply connect a wallet that works with Ethereum, like Ledger Flex or Trezor Safe 5. There’s no need to sign up for an account or provide personal information, making it accessible for many.

However, trading on the Ethereum blockchain can incur high gas fees during periods of network congestion, which can be a drawback for budget-conscious users.

SushiSwap

SushiSwap is another well-known DEX that extends its services beyond simple token swaps. It offers features like liquidity provision, yield farming, and staking through its token that allow you to earn rewards while participating in the DeFi ecosystem.

What sets SushiSwap apart is its strong focus on community and innovation. It supports cross-chain swaps and provides governance rights, enabling users to have a say in the platform’s future development.

SushiSwap can be an appealing option for those seeking diverse opportunities. With its active development, evolving features, and focus on user participation, it’s a platform that grows alongside you as you explore the ever-expanding DeFi space.

So, those are my top picks from the two main types of crypto exchanges. These platforms are highly regarded within the community, making them a reliable starting point. Plus, they come with a range of features and benefits that are definitely worth exploring.

Of course, there are plenty of other different crypto exchanges out there, each designed to cater to specific trading styles and preferences. If my suggestions don’t suit you, or if you want to look for more options, I suggest checking out BitDegree’s exchange tracker. It’s a useful tool that can help you compare different platforms and find one that fits you best.

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Conclusions

To conclude, there are two types of crypto exchanges: centralized and decentralized. For beginners or casual traders, centralized platforms are often the best choice. They provide user-friendly interfaces, high liquidity, and reliable customer support, making them accessible and relatively simple to use.

On the other hand, experienced traders would prefer decentralized platforms. These exchanges provide more privacy, give users greater control over their assets, and allow access to a wider variety of altcoins.

If you’re looking for a place to start, Bybit, Kraken, and Binance are my top recommendations. They offer a good balance of user-friendly designs and advanced features, along with strong security and competitive fees, making them reliable options for traders at any level.

The content published on this website is not aimed to give any kind of financial, investment, trading, or any other form of advice. BitDegree.org does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency. Before making financial investment decisions, do consult your financial advisor.

Scientific References

1. Goel S., Mittal H.: 'Economic, legal and financial perspectives on cryptocurrencies: a review on cryptocurrency growth, opportunities, and future prospects';

2. Aspris A., Foley S., Svec J., Wang L.: 'Decentralized exchanges: The “wild west” of cryptocurrency trading';

3. Hägele S.: 'Centralized exchanges vs. decentralized exchanges in cryptocurrency markets: A systematic literature review'.