Cryptocurrency exchanges: Where to buy and sell Bitcoin and other digital assets
What is a cryptocurrency exchange?
A cryptocurrency exchange is a digital marketplace where people can buy, sell, or trade cryptocurrencies and other digital assets. Some exchanges operate like traditional brokerage platforms, offering user accounts and support for government-issued (fiat) money, while others connect buyers and sellers directly through blockchain-based protocols.What is the difference between centralized and decentralized exchanges?
Centralized exchanges (CEXs) are run by companies that hold customer accounts and custody assets on your behalf. They tend to be easier to use and support a wider range of fiat payment options. Decentralized exchanges (DEXs), by contrast, let users trade directly from their own wallets without sharing personal information, though they can be harder to navigate and rely on software that may contain vulnerabilities.How do people get started trading on a crypto exchange?
Most centralized exchanges require users to register, fund an account with cash or crypto, and then place buy or sell orders. Decentralized exchanges connect directly to a user’s wallet—no account required—but typically don’t handle fiat money, so beginners often use a centralized platform or an on-ramp service to buy their first crypto before trading on a DEX.Wondering how to purchase or trade Bitcoin and other cryptocurrencies? Crypto exchanges are digital marketplaces where you can buy and sell digital assets. Many of the top crypto exchanges are easy to use and accessible from many locations.
Cryptocurrency exchanges can be structured in a couple different ways, with varying coin offerings and platform features.
Key Points
- Cryptocurrency exchanges enable purchases and sales of cryptocurrencies.
- Crypto exchanges can be centralized or decentralized.
- Each cryptocurrency exchange supports different coins and core features.
What is a cryptocurrency exchange?
A cryptocurrency exchange is a digital marketplace platform that enables users to buy and sell cryptocurrencies. Cryptocurrency exchanges may also support the trading of other digital assets, such as non-fungible tokens (NFTs).
Cryptocurrency exchanges operate much like traditional stock exchanges, with two notable exceptions:
- No physical presence. Cryptocurrency exchanges—unlike the New York Stock Exchange or the Chicago Mercantile Exchange—are strictly digital marketplaces.
- Historically unregulated. Although the regulatory framework is still evolving, crypto exchanges in the U.S. face increasing oversight from agencies such as the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), though the level of regulation still varies by platform and jurisdiction. Plus, cryptocurrency exchanges in the U.S. must comply with the Bank Secrecy Act, which has requirements for registration, reporting, and customer data collection.
Cryptocurrency exchanges are similar to digital money markets, except that the majority of supported currencies are cryptocurrencies. Crypto exchanges also support a range of fiat (government-issued) currencies.
The top cryptocurrency exchanges aim to be convenient and secure. Cryptocurrency deposits held on crypto exchanges are not insured by the Federal Deposit Insurance Corporation (FDIC)—another notable departure from the security customarily afforded by U.S. banks and financial institutions.
Centralized vs. decentralized crypto exchanges
Cryptocurrency exchanges may be centralized or decentralized. Centralized exchanges are controlled by a singular group or entity, such as a publicly traded corporation or private company. Decentralized exchanges (DEXs) are controlled by technology protocols that enable large groups of people to efficiently make decisions and achieve consensus. Decentralized crypto exchanges are an application of decentralized finance (DeFi).
These two distinct types of crypto exchanges have advantages and disadvantages.
| Exchange type | Centralized | Decentralized |
|---|---|---|
| Range of crypto offerings | Moderate | High to moderate |
| Fiat currencies supported | High to moderate | Moderate to low |
| User friendliness | High | Low |
| User funds custodian | Crypto exchange | Exchange user |
| Privacy | Moderate | High |
| Security | Moderate to low | Moderate to high |
| Liquidity and concentration risk | Moderate to low | Moderate to high |
| Adoption rate | High | Low |
- Range of offerings. Users can buy nearly any cryptocurrency on decentralized crypto exchanges, while centralized exchanges may be more likely to vet and limit their offerings.
- Fiat currencies supported. Centralized cryptocurrency exchanges often support a variety of government-backed fiat currencies. DEXs typically integrate with only a few forms of fiat money.
- User friendliness. The top centralized crypto exchanges are generally easy to use, while decentralized exchanges may require specialized knowledge to access.
- Custodianship of user funds. Centralized crypto exchanges have custody over users’ cryptocurrency assets held on the exchange. Recent exchange failures have shown that custodial platforms can face insolvency or misuse of customer assets, which is one reason some traders prefer to store crypto in personal wallets. Users of decentralized crypto exchanges retain full control over their digital assets.
- Privacy. Decentralized exchanges allow users to transact without sharing personal information with a central intermediary, though activity on the blockchain itself is publicly viewable. Centralized exchanges are required to collect users’ personal information at the time of registration.
- Security. Decentralized exchanges remove some risks that come with centralized platforms, but they introduce others, such as the possibility of bugs in the underlying code. Centralized crypto exchanges can be vulnerable to cyberattacks.
- Liquidity and concentration risk. Centralized exchanges with high trading volumes offer more liquidity and lower concentration risks (many users are less likely to act as a cohesive group). Decentralized exchanges with low trading volumes can face liquidity shortages or be affected by concentrated buying or selling activity.
- Adoption rate. Because centralized crypto exchanges are more accessible and easier to use, they have more registered cryptocurrency investors and traders compared to decentralized platforms.
How crypto exchanges work
Cryptocurrency exchanges create and maintain digital marketplaces to match cryptocurrency buyers with sellers. Many cryptocurrency exchanges support fiat currencies, such as U.S. dollars, enabling users to deposit a local currency into their crypto exchange account to fund it.
Suppose you want to buy your first cryptocurrency. Here are the basic steps:
- Research and choose a reputable cryptocurrency exchange.
- Register with the exchange and fund your account or crypto wallet.
- Determine which cryptocurrency you want to buy and how much.
- Perform the necessary steps to initiate and complete a transaction.
- Monitor your account or crypto wallet to verify that the transaction was a success.
Examples of top cryptocurrency exchanges
The leading cryptocurrency exchanges include:
- Coinbase. Coinbase (COIN) is among the largest centralized cryptocurrency exchanges with a wide coin selection. The company is publicly traded and domiciled in the U.S., making it a relatively safe choice for investors.
- Binance. Another major cryptocurrency exchange is Binance, which is domiciled abroad but also operates a U.S. entity. Binance boasts an extensive coin selection, global customer base, and its own cryptocurrency (BNB).
- Uniswap. The leading decentralized finance (DeFi) exchange is Uniswap, which has a vast, comprehensive coin selection. It’s governed through a decentralized protocol in which UNI token holders can participate in governance decisions. Uniswap leverages the efficiency of its decentralized protocol to keep the platform’s trading fees to a competitive minimum.
The bottom line
Choosing a crypto exchange ultimately comes down to how you want to interact with digital assets. Centralized platforms offer convenience, customer support, and relatively broad access, but they require you to trust a company with your assets. Decentralized exchanges give you more control and privacy, but they also demand more technical know-how and introduce new kinds of risks.
Understanding these trade-offs—custody, usability, liquidity, and security—can help you choose the type of exchange that aligns best with your experience level and comfort with managing your own digital assets.
References
- [PDF] Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies | fincen.gov
- [PDF] 2024 National Money Laundering Risk Assessment (NMLRA) | home.treasury.gov