7 Different Types of Crypto Exchanges | How They All Compare

There are many different type of crypto exchanges. Some focus on beginners, offering an easy to use experience, while others are more privacy-focused. Here are the different types and how they compare.

Updated: Feb 6, 2024

Different Types of Cryptocurrency Exchanges

Every cryptocurrency exchange is unique. Some are made for beginners and are easy to use, while others are more privacy-focused and allow you to self-custody your funds. In this post, we'll dig into the 7 types of crypto exchanges to help you choose the right one for your needs. 

Overview

There are many types of cryptocurrency exchanges. It's also important to note, these can overlap and in fact, many times they do. For example, a centralized exchange can also offer P2P Trading and an OTC desk. However, these are the different ways investors can make cryptocurrency trades:

When looking for the best cryptocurrency exchanges, there are many factors to consider like fees, privacy, security, ease of use, trading tools, and much more. As long as the platform is safe, there is no right or wrong choice as to which one is best to use. The best type of crypto exchange entirely depends on the individuals needs. It's also common to use multiple platforms for different uses.

1. Centralized Exchanges

Centralized exchanges (CEXs) are operated by a central authority. These exchanges hold users funds, which means that users must trust the exchange to keep their digital assets secure. These platforms usually offer less coins than decentralized exchanges but have a wider range of services and features including support for fiat currencies. Examples of popular centralized exchanges include Coinbase, Binance, and Bitfinex.

When choosing a centralized exchange, users can choose between a domestic or an offshore platform. Domestic platforms, such as those based in the US or Canada, are often subject to stricter regulations, which can provide an additional layer of security. On the other hand, offshore platforms may offer a wider range of features and coins, but may be less secure due to less stringent regulations.

Pros

  • Easiest for beginners
  • Support for fiat currencies
  • More regulated
  • Customer support
  • Lots of features & trading tools
  • Fast transaction speed

Cons

  • A company controls your funds
  • Third-party risk (eg. hacks, bank runs, etc)
  • No anonymity (KYC is usually required)
  • Limited number of tokens
  • Geographical restrictions

2. Decentralized Exchanges

Decentralized exchanges (DEXs) allow users to buy and sell cryptocurrencies directly with one another, without the need for a central authority to facilitate the transactions. DEXs are not controlled by any single entity or organization, and instead relies on smart contracts and other decentralized technologies to facilitate trades.

They offer a wider selection of altcoins than CEXs and allow users to self-custody their own funds. However, DEXs can be more difficult for beginners to use and may have higher fees and slower trades compared to a CEX. Examples of DEXs include Uniswap, 1Inch, and ApeX.

Pros

  • No middleman or central authority
  • Private & fast (all you need is a wallet)
  • 1000's of tokens
  • Control your private keys
  • Permissionless & borderless

Cons

  • Harder for newcomers
  • Must trust the smart contract
  • Doesn't support fiat currencies
  • Not regulated
  • Less liquidity & slower trades
  • Higher fees (depending on the blockchain)

3. Retail Brokerages

Some retail brokerages, such as Robinhood and Webull, offer users the ability to trade cryptocurrency assets in addition to traditional financial instruments such as stocks. These platforms are more regulated and offer the convenience of being able to trade crypto, stocks, and ETFs under one app.

However, the drawbacks are usually higher fees (especially in the spread) and fewer features compared to crypto native companies and decentralized applications (dApps).

Pros

  • Beginner friendly
  • The most regulated
  • Convenient (stocks & crypto in one place)
  • Supports local fiat currency
  • Customer support available

Cons

  • Limited cryptocurrencies & features
  • No privacy (KYC is mandatory)
  • Sometimes don't allow crypto withdrawals
  • No control over private keys
  • Limited access in some countries
  • Fees are usually high

4. P2P Exchanges

Peer-to-peer (P2P) exchanges allow users to buy and sell cryptocurrency directly with one another. During the process, buyers and sellers are able to negotiate with one another while the platform offers a safe experience for both sides.

P2P exchanges offer a range of payment methods, but it is important to find a reliable seller with good reviews. Transactions may also be slower on P2P exchanges because they require the use of escrow services to ensure the security of funds.

LocalCryptos is a popular P2P marketplace and centralized exchanges (CEXs) like Binance also offer P2P trading, allowing users to buy and sell cryptocurrency directly with one another through the exchange. Decentralized exchanges (DEXs) have P2P trading built into their very structure, allowing users to trade directly without the need for a central authority.

Pros

  • Flexible payment options in your local currency
  • Avoid government restrictions
  • More privacy than CEXs
  • Negotiate prices with sellers

Cons

  • Higher risk of fraud
  • Slower transactions
  • Less liquidity
  • Harder for newcomers

5. Non-Custodial Exchanges

Non-custodial exchanges are a type of centralized exchange that do not hold your funds. Instead, they allow you to send cryptocurrency directly to your wallet. This means you have full control over your funds and do not need to trust the exchange to keep your digital assets safe.

Most CEXs, such as Coinbase, are custodial exchanges. They hold onto your private keys and are responsible for safeguarding your funds. On the other hand, non-custodial exchanges give you full control over the private keys and it's the users responsibility to protect the funds.

Usually, they offer local payment methods and may even allow you to cash out to your bank account. Paytrie in Canada, and Easy Crypto in Australia are examples of non-custodial exchanges. They offer a secure alternative to traditional centralized exchanges that hold your funds. On the downside, they are usually more expensive and slower, since they must make a crypto transfer to send the assets to your wallet. It's also important to note, all DEXs are non-custodial since you are connecting your wallet in order to use it.

Pros

  • Highly secure (less third party risk)
  • Control your private keys
  • Automatically sends crypto to your wallet
  • Centralized & decentralized options
  • More transparent fees

Cons

  • Harder for newcomers (requires a wallet)
  • Usually higher fees
  • Slower tranactions
  • Less features than custodial exchanges
  • Less payment options

6. OTC Exchanges

OTC (over-the-counter) exchanges are crypto trading platforms geared towards high net-worth clients or institutions who want to trade large amounts of cryptocurrency without affecting the market price. These OTC desks typically provide more 1 on 1 customer support and custom solutions for certain clients.

Coinbase Prime and Kraken OTC are two examples of over-the-counter services.

Pros

  • Conduct large transactions
  • Reduced impact on market volatility
  • Private transactions (not on public order books)
  • Personalized solutions
  • Personalized customer support

Cons

  • Large minimum amounts required
  • Limited access & slow application process
  • Less transparency
  • Centralized (third party risk)

7. Hybrid Exchanges

Hybrid crypto exchanges combine the advantages of both centralized and decentralized exchanges. They offer the benefits of both types of platforms, such as the ability to trade a wide range of coins, fast trading speeds, and user-friendly interfaces. However, it's important to do your research when choosing a hybrid exchange, as these are not without their risks.

Pros

  • Lots of tokens
  • Control over private keys
  • Increased privacy 
  • User-friendly
  • Increased liquidity

Cons

  • Limited adoption so far (still new)
  • Not many choices available
  • Risk of new technical erros
  • Harder for newcomers

Conclusion

In summary, there are many types of crypto exchanges that allow you to buy and sell digital assets in different ways. Many of them can overlap but in general, you can use this information to pick the best platform for your needs.

FAQ

How Many Crypto Exchanges Are There?

CoinMarketCap lists over 700 crypto exchanges globally, but this doesn't include many domestic exchanges in each country, such as Newton and Shakepay in Canada. It's likely that there are thousands of crypto exchanges globally.

What Type Of Crypto Exchange Is Best For Security?

When it comes to security, non-custodial exchanges or decentralized exchanges (DEXs) are typically the best choice. These platforms allow you to self-custody your funds, giving you full control over your private keys. However, you should still research every platform individually and make sure it has a good reputation.

What Type Of Crypto Exchange Are Best For Beginners?

Retail brokerages and centralized exchanges are often the most beginner-friendly. They have user-friendly interfaces and a wide range of payment options, making it easy to buy and sell crypto. Just make sure to do your research when it comes to fees, reputation, and security.

What Is A Crypto Exchange Versus A Crypto Wallet?

A crypto exchange is a platform where you can buy and sell cryptocurrencies using fiat money or other digital assets. A crypto wallet is a digital storage device that allows you to securely store, send, and receive cryptocurrencies.

Author

At RankFi.com, our goal is to be your trusted source for crypto reviews, guides and research. We seek out researchers with extensive crypto knowledge and firsthand experience using dozens of CeFi and DeFi platforms.

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