Cryptocurrency is an ever-changing sphere, with new tokens and projects added almost daily. The sub-sector has grown tremendously in the past few years, drawing retailers, institutions, regulators, and governments.
As of early H2 2022, there were over 19k cryptocurrency projects and hundreds of thousands of unique markets, translating to a cumulative market cap of over $985 billion, according to data streams from trackers. This is more than half the total market cap when digital asset prices peaked in November 2021.
As crypto and blockchain solutions are embraced, the sphere’s market will only continue to grow. The blockchain’s inherent advantages of resilience, security, and transparency attract innovators looking to deploy functional dApps while concurrently releasing tokens that will be listed in several centralized or decentralized exchanges.
Centralized Exchanges versus Decentralized Exchanges
Cryptocurrency markets are enabled by exchanges which are websites connecting buyers and sellers in real-time. Common exchanges are centralized and operated off-chain, allowing users to swap coins and tokens in various formats.
Centralized exchanges are the first and most popular forms of cryptocurrency markets as they are relatively easy to use, support crypto-to-crypto swapping, and most of them integrate fiat payment methods for ease of trading. For consumer protection, leading cryptocurrency exchanges have complied with jurisdictional rules, demanding various levels of KYC. Exchanges like Binance and Coinbase, for example, require users to register and verify their identities by submitting personal information like national IDs, passports, or driving licenses.
Besides centralized exchanges, cryptocurrency trading can be executed via a decentralized exchange or DEX. A DEX is an on-chain cryptocurrency exchange enabling the swapping of tokens without an intermediary. This is possible because these DEXes rely on smart contracts, which are self-executing codes. Unlike a centralized exchange like Binance, the processing speed of a DEX depends on the blockchain’s or underpinning platform’s processing power. Therefore, the faster the underlying chain, the higher the throughput. While this presents challenges that developers are actively working on, users are attracted to DEXes because of token diversity and the absence of KYC. Typically, there are more tokens listed than in a centralized exchange because anyone is free to create a liquidity pool, list a token, and enable instant trading. Also, as mentioned earlier, a DEX is smart contracts-powered and, therefore, non-custodial. This means a user needs not to submit personal details. To begin trading, a user must connect using their non-custodial wallet like MetaMask and swap tokens.
Non-Fungible Token (NFT) Marketplaces
Beyond the swapping of fungible tokens, there exists a marketplace for non-fungible tokens (NFTs).
An NFT marketplace is a marketplace where NFTs and crypto-collectibles are traded in real-time. These portals, like crypto markets for fungible tokens, bring creators and buyers together, creating a vibrant market. This is critical because, unlike fungible tokens like Bitcoin or ETH, NFTs cannot be swapped for another and are relatively illiquid.
NFT marketplaces like OpenSea or SuperRare are crucial in ensuring that NFTs can be traded for fungible tokens, like ETH or stablecoins, deepening the emerging space’s liquidity, propping creators, and promoting adoption.
