3 Different Types Of Cryptocurrency Exchanges: CEX, DEX, And Hybrid

Today I'd like to answer a question I get asked a lot by my investment students: What are the different types of Cryptocurrency Exchanges? A cryptocurrency exchange is a web-service that can help people exchange their cash money into cryptocurrencies and vice versa. Most exchanges are more focused on providing services to help you exchange a cryptocurrency such as Bitcoin, into other digital currencies like Ethereum, Litecoin, etc.  There are currently three types of exchanges out there: centralized or CEX, decentralized or DEX, and hybrid. Read on to learn about each of them, their differences, and their pros and cons.

Different Types of Cryptocurrency Exchanges - Centralized CEX - Decentralized DEX - Hybrid

1- Centralized Cryptocurrency Exchanges  

Also known as a CEX, centralized cryptocurrency exchanges are similar to traditional stock exchanges. The buyers and sellers come together and the exchange plays the role of a middle-man. In the crypto-world, “centralized” means to trust somebody else to handle your money. Among different types of cryptocurrency exchanges, one of the main issues with centralized cryptocurrency exchanges is their vulnerability to hacks.

This is how a centralized exchange typically works:

  1. You give your money to the exchange
  2. They hold it for you (like a bank, or a trusted middleman)
  3. You watch the prices of the available cryptocurrencies on the exchange
  4. Depending on the exchange, you can trade your fiat currency (like the US dollar) for a cryptocurrency (like Bitcoin.) With most exchanges, however, you’ll find better luck exchanging two cryptocurrencies for one another. We talk more about cryptocurrency pairings in Chapter 9.
  5. You place your order
  6. The exchange finds a seller to match your buy If you’re selling, the exchange finds you a buyer.
  7. Tada! You just crypto-shopped on an exchange.

Most centralized crypto exchanges have crypto/crypto pairings. But not all of them provide fiat/crypto pairings.

For newbies who are trying out different types of cryptocurrency exchanges, it may make more sense to start at an exchange that offers fiat/crypto pairings. That’s precisely the reason why in 2017 and 2018 exchanges who provided this service became some of the most popular ones. However, you’d need to consider other characteristics of the exchange as well before choosing one.

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Vanessa Brown 7 months ago Member's comment

Really interesting article. Is one of the differences between centralized and decentralized whether you have your own personal wallet? In a centralized exchange, they have your wallet, whereas in a decentralized one, you have it yourself, on your device?