Exchanging cryptocurrency for real money (or we call it fiat money) means that you sell your crypto coins for traditional money, such as the US dollar, Euro, British Pound, or others. You can exchange cryptocurrency for fiat money on different platforms, such as centralized and decentralized exchanges, peer-to-peer (P2P) platforms, and exchangers.
Table of contents
- Types of Cryptocurrency Exchanges
- How Cryptocurrency Exchange Works
- Major Cryptocurrency Exchange Platforms
- Security When Exchanging Cryptocurrency
- Fees and Costs of Cryptocurrency Exchange
- How to Choose a Cryptocurrency Exchange Platform
- Exchanging Cryptocurrency via Mobile Apps
Why Crypto Exchanges Are Important
For users, cryptocurrencies are a way to store value or a type of investment. But things become complicated when it comes to swapping crypto for fiat. This is needed though to be able to make everyday purchases, pay bills, and perform other daily activities. Cryptocurrency exchanges connect digital and traditional finance and offer an easy way to exchange crypto for fiat.
The Role of Exchanges in the Cryptocurrency Ecosystem
Cryptocurrency exchanges are very important in the digital economy. They provide liquidity and make transactions easier. The crypto adoption would be much more limited without cryptocurrency exchanges.
These platforms also stabilize the market because they allow traders and investors to buy and sell crypto assets easily and rapidly.
Types of Cryptocurrency Exchanges
There are the following types of cryptocurrency exchanges.
Centralized Cryptocurrency Exchanges (CEX)
Centralized exchanges (CEX) are platforms managed by a company. This company acts as an intermediary when users buy or sell cryptocurrencies. Usually, centralized exchanges have a user-friendly interface, they provide a very high liquidity level, and normally, users can get help from customer support if something goes wrong or if there are any questions.
To use a centralized exchange, users have to register an account and verify their identity. All funds of users are stored in the wallet of the exchange. This is one of the main drawbacks of centralized exchanges because if a hacker breaks through the platform’s security, all users’ funds may be stolen.
Decentralized Exchanges (DEX)
Decentralized exchanges (DEX) operate without a central authority. Smart contracts manage all operations of decentralized exchanges.
Decentralized exchanges do not require users to pass KYC. But they offer lower liquidity and their interfaces may be complicated for beginners. Also, users need to have their own wallets and know how to manage them if they want to use a decentralized exchange.
The biggest decentralized exchanges are Uniswap and PancakeSwap.
P2P Platforms
Peer-to-peer (P2P) platforms connect users directly. One user can trade crypto directly with the other user. They both can negotiate payment methods and prices.
Users can get better deals on such platforms but they also shall be careful because of scams. It is always recommended to add funds in an escrow account for security.
The most popular P2P platforms are LocalBitcoins and Binance P2P.
Cryptocurrency Exchangers
Cryptocurrency exchangers are online services that help users to sell crypto for fiat. These services are very easy to use. Users need to pass a minimum verification to use an exchanger. However, these services charge fees, and in some cases, the fees may be very high.
How a Cryptocurrency Exchange Works
Users place buy and sell orders on a crypto exchange. The exchange matches these orders based on the best available prices, and the trades are executed.
There are limit and market orders.
- Market orders are executed right away at the best available price.
- When a user places a limit order, he determines a specific price at which he is willing to buy or to sell an asset. When the predetermined price is reached, the asset is sold or bought. Limit orders help to control losses.
How Smart Contracts Work on DEX
Smart contracts execute all trades when predetermined conditions are met. There are no intermediaries and all transactions can be tracked on a blockchain. However, you shall be aware of gas fees that can be high on decentralized exchanges.
Major Cryptocurrency Exchange Platforms
Centralized Exchanges (Binance and Coinbase)
Binance and Coinbase are the most widely used CEX platforms. They offer a wide selection of cryptocurrencies, high liquidity, and a very secure environment. Binance is known for low fees, and Coinbase has a very user-friendly interface.
Decentralized Platforms (Uniswap, PancakeSwap)
Uniswap and PancakeSwap are the biggest decentralized exchanges. The allow users to swap cryptocurrencies without intermediaries. They are secure but users need to have some experience to use them.
Advantages and Disadvantages of Different Platforms
- CEX: High liquidity, user-friendly, but requires identity verification.
- DEX: More secure and private, but lower liquidity and requires technical knowledge.
- P2P: Direct transactions with customizable terms but higher risk of fraud.
- Exchangers: Fast transactions with minimal verification but higher fees.
How to Exchange Cryptocurrency Securely
Here are some tips that will help you to find the most secure exchange.
Check Platform Reliability
Always research platforms before you start trading. Check what security measures they apply, and if they are compliant with regulatory norms, look for user feedback online. If a platform has a strong track record and a good reputation, you can use it.
Enable Two-Factor Authentication (2FA)
Always enable two-factor authentication. It will protect your account. A reputable exchange will always offer such an option.
Avoid Fraud
Here are some tips to avoid fraud and scams:
- Use reputable exchanges with a track record and positive reviews.
- Never share your passwords, or personal or financial information with anyone.
- Always double-check transaction details before you confirm a transaction.
Fees Paid for Using a Cryptocurrency Exchange
Cryptocurrency exchanges charge different fees, and you shall know them to understand how much you will pay.
Normally, exchanges charge the following fees:
- Trading fees - this is a small percentage of the sum of your transaction.
- Withdrawal fees - this fee is charged when you transfer your coins from the exchange to an external wallet or a bank account.
- Deposit fees - you pay these fees when you transfer fiat to your exchange account.
Different platforms charge different types of fees. Also, the amounts differ. For example, some platforms may charge deposit fees, and others, on the contrary, may give a bonus if you deposit funds.
Centralized exchanges often charge lower fees compared to P2P exchanges. This is why it is very important to compare all fees before you deposit funds and start trading.
How to Choose a Cryptocurrency Exchange Platform
To choose the best cryptocurrency exchange platform, pay attention to such factors as:
- Liquidity - high liquidity means that your trades will be executed rapidly.
- Regulatory compliance - non-compliant exchanges can be banned, and your funds may be lost.
- The selection of assets - make sure the exchange supports cryptocurrencies and fiat currencies that you need.
Along with these criteria, check user reviews. If they are too good to be true, most likely, those are paid reviews. If there is a mixture of positive and negative reviews, read both types to see what issues users have faced. Also, check how the platform reacts to negative reviews and whether they are solved. If the platform replies with a solution, there is a very high possibility that you can trust the platform.
The cryptocurrency exchange must be compliant with the regulation. Otherwise, the business may be banned, and it will impact the funds that you store in its account. Regulated platforms also provide better protection against scams and hacks.
How to Exchange Cryptocurrency to Fiat via Mobile Apps
You can exchange cryptocurrency to fiat not only in your desktop browser. You can do it via a mobile application.
The best mobile apps for exchanging crypto to fiat are those of Binance and Coinbase. But you can choose a mobile app that you like more. A reliable mobile app for buying and selling crypto for fiat shall comply with the following criteria:
- It shall provide easy access to trading from anywhere.
- It is better if it offers such advanced features as price alerts and portfolio tracking.
- It offers secure authentication.
Conclusion
As you can see, you can buy and sell crypto for fiat in many places. Choose the best option for you, learn how all works, and proceed.