Cryptocurrencies, or “cryptos”, as they are popularly called, are a form of digital money that employs a technology known as “blockchain”. Unlike conventional currencies, such as the US dollar, British pound, the euro, and others, cryptocurrencies are decentralized. This means that no central authority is charged with controlling the value of these digital currencies. Besides that, these currencies are encrypted to ensure their security. The common cryptos include Bitcoin, Ethereum, and Litecoin. However, there are over 5,000 cryptocurrencies in circulation according to reports by CoinLore.
Individuals and organizations can both use cryptos to buy goods and services in the same way they would use fiat currencies. Nevertheless, many crypto holders use them as investment vehicles, in the same way as they do with other assets such as precious metals, stocks, etc. Although cryptocurrencies are relatively new and exciting assets to invest in, they pose a significant risk. You must take as much time as you need to fully grasp how each of the coins operates before investing in any of them.
Why Do a Crypto Swap?
People use digital currencies as a store of value where they invest in one or more of them, wait until they appreciate then liquidate them to realize the profits. Those holding cryptocurrencies may choose to exchange them for fiat money or other cryptos. For example, a common crypto swap you can perform is to exchange Bitcoin for Ethereum. This is done in the same way you can exchange USD for Euro or any other currency. You may want to swap Bitcoin for Ethereum because the latter tends to be more stable and is believed to be more reliable and a “safe haven” for investment in these challenging economic times.
Another reason for executing a crypto swap is that investors may hope the coin they buy will appreciate in value more than the one they are selling, offering a chance to make a greater profit. The idea is similar to the one used in the conventional stock exchange.
Ways to Do Crypto Swap
Are you wondering how to swap cryptocurrency? Typically, there are three common ways of exchanging digital currencies. The methods are using centralized exchanges, using decentralized exchanges, and over-the-counter exchanges (OTCs).
Due to the rapid growth in the popularity of cryptocurrencies, many centralized exchanges have opened up to meet the soaring demand. In normal circumstances, the exchanges try to outdo each other based on the number of trading pairs that they offer. This means that you can be almost 100% certain that there is a platform where you can trade an asset if it is on CoinMarketCap.
Although the platforms offer a lot of diversity in the assets you can swap, the variation comes at a cost. In addition, these exchanges target traders to use them, and the platforms adjust their offers in response to traders’ needs. Unfortunately, that makes it hard for ordinary coin holders to utilize those platforms or get involved in the trades.
So, what are the pros and cons you could face when you swap cryptocurrency on a centralized exchange?
- Reliability: Users enjoy a fairly good level of reliability because centralized exchanges offer security when performing a crypto swap or transacting in them. Their users get some comfort trading on a centralized and well-developed platform.
- User-friendliness: For beginners, centralized exchanges offer a friendly and less complex trading method for investing in crypto. These platforms are so much easier to use than peer-to-peer transactions and wallets. Users only have to get into their accounts, check their account balances and transact via apps or websites.
Some of the drawbacks of using centralized exchanges to convert one coin for another, say to swap bitcoin for Ethereum, include the following:
- High transaction fees: The most significant disadvantage of centralized exchanges over other crypto swap methods such as peer-to-peer transactions is the high transaction fees. This is the price you pay for their convenience.
- Price Fluctuations: Due to the high volatility of the cryptos that makes the prices of assets change within a short period during transactions, you may not complete your orders as an investor in time. This means that you may have to redo the procedure from the start in a new transaction.
- Complex KYC procedures: Some exchanges have complicated know-your-customer procedures, and the verification processes can be pretty tricky. It may take up a long time for a new user to get their account verified.
- Regional limitations: Because crypto is still so new and controversial, many regions prohibit exchanges. As such, it could be challenging to find a platform where you can swap cryptocurrency in your area.
Besides using centralized crypto exchanges to swap your bitcoins for other currencies, you can use NakitCoins, the best conversion platform to trade digital currencies for other cryptos or fiat money in Turkey. Nakitcoins helps to sell bitcoin without any hassle and you are safe from hackers and other security threats. You also enjoy affordable fees, and fast, friendly service.
The primary purpose of inventing decentralized exchanges was to offer an alternative to centralized exchanges. Indeed, they have managed to take care of most of those issues and enable you to do a crypto swap conveniently, such as a bitcoin swap. These platforms do not need verification because users directly transfer funds between their wallets.
- Anonymity: these platforms do not compel their users to fill out KYC forms and provide anonymity and confidentiality.
- Avoid market manipulation: Decentralized exchanges are designed to allow peer-to-peer bitcoin swaps or any other coin swap. They do not promote market manipulation, thus safeguarding users from wash trading (fake trading).
- Inadequate variety of coins: Generally, decentralized exchanges are projects with insufficient budgets thus do not manage to be part of reputable centralized exchanges. As a result, those exchanges have quite a limited variety of coins that are not even popular enough to be traded publicly.
- Low liquidity: Due to the low popularity of decentralized exchanges, their liquidity is negatively affected. You could face problems if you want to swap a considerable sum.
Over-the-counter exchanges (OTCs)
These are arguably the best exchanges for non-tech savvy users. An OTC platform can be a good swap crypto exchange if you want to escape the confusing graphs of a centralized exchange. This is because they are platforms integrated with centralized exchanges via an application programming interface (API) to enable users to have an easier crypto swap.
- Simple to use: they avoid the complex and confusing graphs seen in a centralized platform
- Unfriendly rates: Since OTCs add their own fees to every transaction, their final rates are likely to be worse than for centralized platforms
- Lack of transparency: Although OTCs carry their transactions through centralized exchanges, the entire process is opaque. The traders may never know the actual exchange rate when using such a swap crypto exchange. Due to the lack of transparency, users may become victims of manipulation.
When dealing with digital currencies such as Bitcoin, Ethereum, and others, you may want to do a crypto swap from time to time in the hope that the coin you are buying will appreciate and earn you some profit. You may also exchange one cryptocurrency for another to keep your money in a more stable currency such as Ethereum. You can use the three main methods described here to swap coins, namely: centralized exchanges, decentralized exchanges, and over-the-counter exchanges (OTCs).