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In the last post I’ve the focus more on the decentralized exchanges. In this post I will focus on the centralized exchanges. The centralized exchanges are more popular than the decentralized, because they are easier to use. Many of the investors find the concept of the centralized exchange as misleading, due to the fact that the cryptocurrencies are labelled as decentralized. But, for a large number of investors the centralized crypto exchange is the most important vehicle for transacting. The exchanges are platforms (websites) where you can buy, sell and exchange cryptocurrencies for other digital currency or fiat currencies like USD or Euro.
The idea of the centralized exchanges is the use of the middle man or third party to help conduct transaction. The buyers and sellers trust the middle man to handle their assets. That means that certain fees are involved. This is exactly the same like in a bank, where the customer trusts the bank for holding his or her money. The customers feel safe with the centralized exchange, that the transactions will be safely complete for them, and they also make use of the network of users in the exchange in order to find trading partners. Because the cryptocurrencies are stored in digital wallets, a person can loose hundreds of dollars simply by forgetting the key to the wallet. With exchange this will never happen, as it safeguards the holdings in place od that investor.
Let’s have a look at some of the advantages that the centralizedexchanges have:
- The centralized exchange can be used to conduct trades from fiat to cryptocurrency (and vise versa). Also can conduct trades between 2 different cryptocurrencies.
- The most popular features of the centralized exchanges is the fact that they accept direct fiat currency payments, while the decentralized platforms only accept cryptocurrencies. The centralized exchanges accept bank transfers, wire, Visa and Master card or debit card payments. This enables the users to quickly convert fiat currencies to crypto and vise versa, abd to quickly cash out when needed.
- The middle man is present in the centralized cryptocurrencie exchanges.
- Some centralized exchanges are offering financial services like banking, digital wallets and crypto-debit card. This a big advantage, because they allow users to spend cryptocurrencies from their accounts, at online retailers that accept that currency.
- Another key point in the centralized exchanges is legality and regulation. Most of the exchanges are licensed and regulated by the government. They have to follow the law and are held accountable if something goes wrong.
- Most of the centralized exchanges publish their ownership, their addresses and their location. This gives big trust, because you know who are you dealing with and where to find them.
- The centralized exchange has a team of engineers, whose job is to maintain the platform and fix the problems as soon as they occur. This lead to a higher level of security.
So these are some of the advantages that the centralized cryptocurrencies have. One of the biggest advantage is that you can cash out really fast for fiat currencies. That is the biggest advantage that is driving the people to the centralized exchange.
Now, let’s have a look of some disadvantages that the centralized exchanges have, which every investor must be aware of:
- The centralized platforms are a big target for hackers and malware. All the accounts and the money in the exchange, especially the cryptocurrencies are a lure for thieves.
- Surveillance and tracking of transactions is easy, because they go through a central clearinghouse. This means that there is less privacy and more vulnerability to criminals.
- It can take time to set up accounts and process transactions. Many centralized exchanges operate during business hours, and process transactions on specific days.
- The centralized exchanges are a subject to regulation, taxation and other government actions. Most of the platforms must share the users information with tax collectors, and their account can be seized or garnished for tax purposes.
Same way like in the decentralized exchanges, in the centralized exchanges there are some pros and cons. If you decide to go with a centralized exchange, it’s important to take note of these 5 key information to minimize your risk and maximize your return of investment:
- Reputation
Before you start to exchange on any site, ensure that you have gathered sufficient information regarding that site, such as reviews from professional traders and well known industry websites. Another good thing is to join certain forums that are discussing about cryptocurrencies such as ‘’Bitcoin Talk’’ or ‘’Reddit”.
- Fees
Almost all of the exchanges have information about the fees on their websites. Also make sure that you understand some of the exchange jargons like: deposit, transaction and withdrawal fees. Fees usually vary according to the exchange you choose.
- Payment methods
Always have e look at the payment method available. Does that site accepts credit and debit card? Does it supports wire transfer? Pay Pal or Payza? If some particular exchange has very limited payment method, then this might not be convenient for you. Another very important thing to remember is that by purchasing currencies via credit card will always require an ID verification and it comes with a premium price to increase the security measures. In the meantime, purchasing cryptocurrency via transfer will take longer as it takes time for banks to process.
- Verification requirement
A lot of the Bitcoin’s trading platforms in the USA and UK require a form of ID verification to make a deposit or withdrawals. Some exchanges will also allow you to remain anonymous. You must keep in mind that verifications may take certain time. Some of them a few days, and some up to few weeks. But this is very important for exchanges to be protected from any sort of money laundering.
- Exchange rate
Different exchanges usually offer different rates. That is why is very important to look around and settle for one exchange. Because this will make a big difference on your investment, as cryptocurrenciesare known to fluctuate in value up to 10% and even higher.
As the cryptocurrencies are gaining more attention around the world, and a lot of new cryptocurrencies are emerging, there is a vast array of cryptocurrencies to choose from. But not all of the exchange platform are created equal. Always make your research before you settle for certain exchange. Do not jump right away, even if you’ve been told about certain exchange from someone that you know. The centralized exchanges can be very profitable, due to the fact that you can cash out very fast in fiat currencies. But also you can lose a lot of money, if you choose the wrong exchange, the exchange with the highest fees and the lowest rates. In the next post I will be covering some of the top centralized exchanges that you can start buying, selling and trading cryptocurrecies.
Until the next post….
Thank you for reading.
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