Cryptocurrency exchanges are places that allow a user to buy, sell and trade digital assets. It’s simply a platform that acts as a gateway for users to come together and exchange their crypto to one another. Exchanges play a vital role in matching buyers with sellers. There is a distinction between what kind of platform a user might use.
Centralized exchange (CEX)
The popularity of cryptocurrencies has increased in recent years, and it attracted a lot of newcomers to the crypto space. The most popular option for starters, is a decentralized exchange (CEX). It is a platform that is runned by a company. It offers an easy-to-use interface and will store crypto on your behalf. In general this is a more accessible way for an average user.
Keep your account safe
- Use a strong password
- Enable two-factor authentication
- Watch out for phishing attacks (scam email, socials or private messages)
Decentralized exchange (DEX)
A major drawback of an exchange that is runned by a company (CEX) is that you have to trust the company to keep your crypto safe. If the exchange is hacked, makes mistakes or is insolvent, you will likely lose all your crypto. To get complete control of your crypto during trading, a user should use a decentralized exchange (DEX). It’s an automated program that facilitates crypto trades directly on the blockchain, using a peer-to-peer swapping system. Because it is not runned by a company, no one can take custody of your funds. The flip side is, a DEX is harder to navigate through, has additional fees and you have to educate yourself more.
Keep your wallet secured
- Buy and use a hardware wallet
- Create a 24-word seed (tip: add a 25-word passphrase, advanced feature).
- Keep your seed phrase hidden.
Not your keys, not your coins
This is a popular expression in the world of crypto and a very important one. If you don’t own your private keys, you don’t have full control over your cryptocurrency. In short, when you park your crypto on a centralized exchange, the company will own your private keys and therefore have full control over your assets. Best practice is to leave as little as possible on a centralized exchange. Store most of your crypto (off chain), meaning send it to a cryptocurrency wallet you control. In other words, you own the private keys.