How to Use a Decentralized Exchange to Trade Cryptocurrency

If you’re interested in trading cryptocurrency, you need to be aware of the different kinds of exchanges that exist and how they work. As opposed to centralized exchanges like Binance or Bittrex, decentralized exchanges (DEXs) are not owned by any one party, but instead run on blockchain technology that enables users to trade directly with each other without having to go through an intermediary like an exchange. In this post, we’ll explore the advantages and disadvantages of decentralized exchanges over centralized ones, as well as how you can use them to trade cryptocurrency effectively.

What are Decentralized Exchanges?

A decentralized exchange is an online marketplace for cryptocurrencies that does not rely on a third party service to hold customer funds. These exchanges function as peer-to-peer markets, with buyers and sellers trading directly with one another using cryptocurrency. There are no restrictions on how much you can buy or sell, as long as there is sufficient demand in the market for that currency. Most decentralized exchanges are open source; their protocols and algorithms are publicly accessible, which means anyone can contribute resources to improve them or use them for other projects. In addition, because users trade directly with one another using wallets from their personal devices there’s no need for withdrawal limits or identity verification procedures—like those you have when opening a bank account.

How do they differ from Centralized Exchanges?

Unlike centralized exchanges, decentralized exchanges are not run by a single company or institution. Instead, transactions take place directly between users (peer-to-peer), through an automated process. This means that no middleman can steal your cryptocurrency, lock you out of your account, or make changes without consensus. For more information about blockchain technology and how it differs from regular databases and other types of ledgers, read our How Blockchain Works guide.

Why is it better than using Centralized Exchanges?

Centralized exchanges are highly susceptible to hacking attacks, with an average of $400 million worth of cryptocurrency stolen every year. Some even consider centralized exchanges as honeypots for hackers and cybercriminals. The decentralized nature of these DEXs makes them immune from most attacks, but still allows users to trade their cryptocurrencies freely using smart contracts. You could trade cryptocurrencies without having to rely on any third party services!

What are some of the best decentralized exchanges out there?

In general, I’d say that decentralized exchanges are more vulnerable than centralized ones. So that’s why I recommend you stick with well-known DEXs (like EtherDelta), and make sure your funds are securely protected. You can also check out CoinMarketCap for a full list of decentralized exchanges. Also, if you have experience with cryptocurrency trading or have used some of these DEXs before, feel free to leave your thoughts in our comments section! :)

The Best Time to Invest in Altcoins, Tokens and ICOs

Investment timing is key in any financial decision, but it’s especially true with cryptocurrency. Although there are many exchanges and digital wallets available, not all of them allow you to invest in these new forms of currency. If you want to buy altcoins, ICOs or tokens, your best option is through a decentralized exchange (DEX). This means that unlike more traditional exchanges such as Binance and Coinbase, no one owns or controls a decentralized exchange.

MetaMask extension in your web browser

To use decentralized exchanges, you’ll need to first download and install extensions such as MetaMask for Chrome or Cipher for Firefox. These add-ons integrate with DApps so that you can directly interact with them through your web browser. (You can read more about how DApps work in our beginner’s guide.) On top of being used for DApps, MetaMask and other extensions will also help you manage your cryptocurrency holdings from within your browser.

Buying and selling cryptocurrencies

The problem with centralized exchanges is that you trust them. They take your money and control your private keys. However, if you have faith in cryptocurrencies long-term (or at least their blockchain), you can use decentralized exchanges like EtherDelta or OasisDEX, which are more secure but harder to use. The added security comes from decentralization; instead of trusting someone else’s server, trades happen directly between users (peer-to-peer) over an automated process that executes trades on behalf of users.

Bitcoin for Ethereum, Litecoin, or any other currency

You can trade one cryptocurrency for another on decentralized exchanges. For example, if you wanted to trade your Bitcoin for Ethereum, you would use an exchange like ShapeShift. Then you simply hold your Ethereum and wait for Litecoin prices to rise—at which point you can sell your ETH (or any other currency) for more Litecoin!

EtherDelta directly to another wallet

EtherDelta is a decentralized exchange that doesn’t require any sort of registration. However, you can transfer your funds from EtherDelta directly to another Ethereum wallet by using MyEtherWallet, which will securely store your Ether tokens for you. By using MyEtherWallet, you can convert your tokens quickly and without sacrificing security.

EtherDelta into an ERC20 compatible

The most popular method for trading Ether and ERC20 tokens is using MyEtherWallet, which functions like any other cryptocurrency wallet. Simply create an account using your email address, connect your Ledger Nano S or Trezor device (if you have one), select Send Ether & Tokens and then choose Ledger Wallet as your device. Once you open it up on MyEtherWallet, you’ll see a list of cryptocurrency tokens that are supported by Ledger Wallet.