Centralised Cryptocurrency Exchanges are online platforms and are the most common method to buy or trade cryptocurrencies. In simple words, this includes buying and selling of cryptocurrencies with fiat (legal ender backed by government degree like rupee, dollar etc.) and also buying and selling cryptocurrencies with other cryptocurrencies. They can also be seen as an online marketplace for the entire cryptocurrency system.

What does it mean to be a “centralized exchange”?

Centralised means to trust someone else to handle your own money.
Until recently, the word “centralized” was synonym to all institutions which managed finance and investment. So, to be centralised means there are trusted middleman who manages all the assets which are in a trade. For instance, in a bank, a customer gives their money to bank to save or hold for them. Now the bank is in full control of the customer’s money. Due to various reasons, somehow, this is a much safer than any other way that the person finds to manage the money themselves. Because institutions like bank have a high security, professional teams and methods to watch for customer’s money. The bank is also capable of offering a number of other services like loans, interest etc.

Centralised cryptocurrency exchanges are similar to institutions like banks. A registered user can store their money with the exchange. And, just like in the case of banks, the money is now in hands of the exchange. Now why are the centralised cryptocurrency exchanges given priority over to any hardware wallet? The reason is same as to why people choose bank over any other way to look after their money. It is the trust of the middleman which makes it easy for the customer to recover a lost password. It provides relief to the customer from the pressure of being 100% in-charge of their hardware account. There have been number of cases where the customer lost their thousands and lakhs of their money because they lost private keys to the hardware wallet in which they kept their money. This alone makes centralised cryptocurrency exchange an attractive idea. Because with a centralised exchange they don’t have to worry about their private key. Recovering private key would be as easy as showing an ID.

What differs a centralised exchange from a decentralised one?

If you are a crypto-enthusiast, you might already know that cryptocurrencies and blockchain are decentralised by nature. This easily allows an exchange to be decentralised. In other words, a decentralised cryptocurrency exchange eliminates the middleman by creating artificially intelligent environment. Every transaction or deal are executed through smart contracts (A smart contract is a computer program that dictates the transaction or controls the transfer of digital assets between parties under specified conditions) so that the deposits made by the customer never passes the hands of an escrow service or any other party. Everything is done through peer-to-peer. Decentralised cryptocurrency exchange are still in very early stages and quite simply not very popular at the moment. But, it is widely accepted that 2018 will bring a lot of progress in the field.

Is volume important?

Yes, the volume of trade is of utmost importance. A large volume of trade ensures, in a way, less volatility and market manipulation. For a better understanding, let’s take an example. Jai is trying to buy 1 Bitcoin for exchange’s current price of 7 lakh and the volume of trade on the site is extremely high, there is very strong probability that he can buy the desired 1 BTC instantly. However, with same market price if he goes on a low trading site, he will consume all the sell orders that are at 7 lakhs before he can buy his whole 1 Bitcoin. Then, he will need to buy the higher sell orders to complete her own order, not only losing money but making the Bitcoin price going higher on the exchange.

Is verification required?

The regulations in each country are different and mostly fuzzy. But nearly all the exchanges around the world require minimum verification to register and authenticate the account. A number of exchanges allow users to trade without providing the identity but those accounts are restricted to small limits. You only require a picture of ID and KYC.

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