What is an exchange?
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What is an exchange?
A cryptocurrency exchange is a website where you may buy and sell digital currencies. You can use exchanges to trade one cryptocurrency for another for example, changing Bitcoin to Litecoin or to buy cryptocurrency with fiat currency. The pricing of the cryptocurrencies on exchanges are based on current market prices. You can also use an exchange to convert cryptocurrencies back into US dollars or other currencies, which you can keep as cash in your account (to trade back into crypto later) or withdraw to a conventional bank account. There are several different categories of exchanges CEX and DEX which we will explain later in the newsletter. Some of the exchanges we recommend are Coinbase, Kraken, Binance, Voyager, Blockfi, and Crypto.com. We have used all of the exchanges listed and can help answer any questions if needed.
How many exchanges are there?
According to coinmarketcap, there are currently 412 active exchanges in the world. This number may be a little inflated due to old exchanges that have zero volume, however it shows the vast and often overwhelming amount of options available. Below is a screenshot of the 7 most used exchanges. It is important to keep in mind that many exchanges such as Binance are unavailable to US citizens. Make sure to do your own research before starting to use an exchange.
What is a CEX?
A centralized exchange is an exchange like coinbase Pro, Binance, Kucoin that have customer support departments and use personal exchange wallets to provide liquidity on the exchange vs only pier to pier real time trading. These exchanges tend to be safer due to there being an approval process for projects to be listed.
Centralized exchanges are somewhat dangerous because you are liberty to the security of the exchange wallets and storage wallets in general. You simply do not have the Keys to their wallets and technically those tokens are held in the exchange's Umbrella wallet with your exchange address being a sub wallet.
(Not your Keys not your Crypto) is a common phrase throughout the crypto community stating that if you don't have the keys to the place you store your crypto then it is not your crypto.
In my time in crypto I have seen a couple CEX’s be victim to hacks that clear out some of their holdings in their live wallets or cold wallets due to security breaches.
My favorite centralized exchanges are Kucoin and Binance, occasionally coinbase pro.
What is a DEX?
Decentralized exchanges are exchanges that use contract addresses to trade tokens. These tokens are traded on an exchange that has no central authority or governing power when it comes to what they can list trade or customer support that takes care and approves tokens to be traded.
Decentralized exchanges have taken the market by storm because they offer all types of coins that anybody can list a lot of them being extremely volatile and some scams due to their being such a low barrier to entry or listing of the contract address on the decentralized exchange.
My favorite decentralized exchanges are Uniswap, SpookySwap, and Moonswap.
Explain Coinbase direct listing on NYSE?
Coinbase was listed on the New York Stock exchange on April 14th, 2021 around the approximate value of 90 billion. Coinbase did a direct listing versus an IPO resulting in no new shares being created. At the time of the direct listing, they had 56 million verified members and generated $56.4 million in revenue in the first quarter. Currently, they have 68 million verified members and subscription and services revenue at the company grew nearly 100% from $56.4 million in Q1 2021 to $102.6 million in the most recent period. The Q3 earnings will be released on November 9th. Coinbase being listed on the NYSE gives greater clarity and protection to crypto users in the United States. It was a huge stepping stone for the industry toward widestream adoption. For anyone entering the space now, we would suggest to get started with Coinbase.