What is a Cryptocurrecy exchange?
A crypto exchange is a marketplace where buyers and sellers meet online to trade their digital assets. Users place their buy and sell orders, and the exchange platform system automatically matches and executes placed orders, acting as a middleman between market participants.
Types of crypto exchanges
Generally speaking, there are two types of crypto exchanges: centralized (CEX) and decentralized (DEX), and a new hybrid type has slowly started to emerge, such as Next and Qurexx exchanges.
A centralized crypto exchange has an administrative center with an entity such as a company controlling and managing its operation. Just like you would trust your bank with your private info and funds, you must also trust the exchange to handle your data and crypto holdings in good faith.
Centralized crypto exchanges negate the foundational principles of cryptocurrencies of privacy and decentralization. After all, cryptocurrencies were created to provide anonymity and operate without trusting a third party or central authority through blockchain and peer-to-peer technologies.
To fight back, developers have created decentralized crypto exchanges on the blockchain for users. Both CEX and DEX come with advantages and disadvantages. For more information, read the difference between centralized and decentralized crypto exchanges.
Centralized crypto exchanges
Besides crypto to crypto trading, a centralized crypto exchange allows you to convert fiat currency or cash to cryptocurrencies and vice versa. New users can deposit fiat on the exchange platform using their credit or debit card and then convert it to any listed cryptocurrency of their choice. Then users can trade their cryptocurrency for another. Users can cash out via the exchange by using the withdrawal function.
The truth is that centralized exchanges are more popular than decentralized exchanges for now among retail investors. They are simple, convenient, reliable, and user-friendly platforms for the average user or newbie. Now let us look at the best-centralized crypto exchanges on the market in 2021 that have the best features.
Ranking the best crypto centralized exchanges
Ranking them is difficult as it depends on what features the user value the most. Nonetheless, crypto exchanges can be ranked based on one specific criterium such as market cap or volume, or a combination of criteria based on matric score:
Top 5 crypto exchanges by market cap Nov 2021
- Binance $98B
- Coinbase $72B
- Crypto.com $8.8B
- FTX $7B
- UNUS SED $3B
The top 5 crypto exchangers based on daily volume Nov 2021
- Binance $3.4B
- Mandala exchange $28B
- BKEK $19.5B
- Upbit $11.7
- OKEx $8.7B
Top crypto exchanges based on coinmarketcap.com scoring matric
“CoinMarketCap ranks and scores exchanges based on the following: Web Traffic Factor; Average Liquidity; Volume, as well as the Confidence that the volume reported by an exchange is legitimate. Weights are assigned to the above-mentioned factors, and a score from 0.0 to 10.0 is given to the Spot Exchange.”
- Baiance 9.9
- Coinbase Base 8.9
- Kucoin 8.6
- FTX 8.6
- Kraken 8.4
CoinGecko crypto exchange score ranking
- Huobi Global
Binance sits on top of all ranking metrics, and for good reasons. Binance is the first crypto exchange launched in 2017. It has the largest market cap and user base, highest liquidity, and trading volume, yet the cheapest trading fees and the most user-friendly interface with an excellent security track record, strict crypto vetting process, and international market reach.
No wonder why Binance is the preferred crypto exchange for newcomers. It is, therefore, safe to conclude that by far Binance is the best-centralized crypto exchange in the crypto market, and it is not surprising to see its token BNB surging in value.
Keep in mind that Binance does not operate in certain countries, such as the United States, due to regulations. However, Binance operates in the US under the name Binance US, but it does not have the same volume and liquidity as US-based exchanges such as Coinbase.
Qualities of good crypto exchanges
Let’s now look at the qualities these exchanges possess that make them rank on the top. Some of these qualities will help you choose which crypto exchange is right for you.
Liquidity and volume and user base
Liquidity, volume, and user base correlate with each other. When more users join the platform, this, in turn, increases volume and liquidity. Liquidity means the speed at which you can find a buyer or a seller for a particular cryptocurrency at the current market price. On the other hand, volume is the total number of coins that have changed hands between buyers and sellers in a given time multiplied by the coin price. More liquidity and volume are essential features of good exchanges as users will not face difficulty buying and selling their digital assets.
Security and trust
While cryptocurrencies blockchain and network are nearly impossible to hack and cyber attackers, users’ digital wallets are vulnerable to security breaches both on and off exchanges. The custody of your wallet and its funds and the private key lies in the hands of the exchange. You must trust the exchange to handle your assets in good faith and trust it has high-security measures to deter hackers from accessing your funds. Therefore, you must choose a reputable crypto exchange with a good security track record.
Fees and commissions
Crypto exchanges earn money through collecting fees on different transactions, such as trading, withdrawal, deposit, and borrowing fees. Fees vary from one crypto exchange to another. At the top, Coinbase charges the highest trading fees while Binance charges the lowest trading fees. Kucoin, followed by Kraken, offers better trading fees than Coinbase but higher fees than Binance. Some exchanges offer discounts on trading fees when their users buy and hold their tokens.
Functionality and trading tools
Some exchanges lack advanced trading tools such as market orders such as stop loss and market and limit orders. These orders, such as stop-loss, are essential to manage risk and protect the investment from a sudden downfall in price. For more information, read market orders. You should choose a platform that has multi and advanced functionalities and services.
Poor customer support simply equals poor exchange. While most top crypto exchanges do not offer customer support over the phone, users can chat live with an agent online to help them solve their issues. This feature exists in Kucoin, Binance, and Kraken, while Coinbase only offers email communication for now.
The bottom line
Given the information above, you should further research and look into the platform features you would like to join before signing up. Your research should include reading community reviews on Reddit on other social media platforms. It is wise to pick two or more exchanges to take advantage of the different services they offer. This is also a good idea to spread your risk and minimize losses shall the exchanges face security breaches. Additionally, you will get access to a wide variety of coins and tokens otherwise not listed on other crypto exchanges.