As the crypto market evolves, new projects appear with their own blockchains and tokens aiming to achieve some specific goals. Some of them target beating Ethereum and offer developers improved scalability, little to no fees, and other perks. Others are created to be used only within decentralized applications such as online casinos or crypto loan services.
Eventually, this incredible diversity of options leads us to a need for exchanging one crypto for another – just as we would exchange dollars, euros and yen.
Read this guide to find out what methods of switching cryptos exist, what pitfalls cryptocurrency enthusiasts may come across when trying to do this and what solution Kriptomat offers to solve those challenges.
Why Are There So Many Blockchains?
Invented in 2008 and launched a year later, Bitcoin was designed to serve as a purely peer-to-peer version of electronic cash. Centralized banks and financial institutions have failed the world and caused the world’s crisis with their endless money-printing. This prompted Satoshi Nakamoto to roll out an alternative means of payment that would not depend on any centralized system with a unique approach to using computer code we’ve come to know as the ‘bitcoin protocol’.
Later in 2013, Vitalik Buterin had a genius idea of ‘smart contracts’ running on top of the blockchain and making it possible to execute transactions without human involvement. The new blockchain platform Ethereum that launched 2 years later has become a foundation to the decentralized economy.
Finally, when the ICO rally made Ethereum almost crash under the weight of the overwhelming demand in 2017, it resulted in the creation of many new startups with the key purpose to resolve the most painful scalability problem. The lack of a unified environment resulted in what we have now: dozens of different blockchains and no simple way to transfer value between them.
One Does Not Simply Exchange Tokens
So what’s the problem with sending funds from one blockchain to another?
The world of cryptocurrencies is tricky. When you send bitcoins from one address to another, you should be careful. Make a single typo, and your funds will be lost with no chance of recovery. The same will happen if you try to send Bitcoin to an Ethereum address or vice versa.
As each of these blockchains operates in its own universe, there is no easy way to establish connections between them. There are some projects that work on resolving this problem of interoperability such as Polkadot, Cosmos, Chainlink, and others. But all of them target developers rather than end-users leaving the latest ones in frustration.
Some workarounds have been invented, though, each one with its own set of obstacles. Let’s review some of the most popular options.
Three Ways To Exchange Cryptocurrencies
For a non-tech-savvy user, these are the three most widely used methods of exchanging cryptocurrencies: OTCs, centralized and decentralized exchanges. Let’s take a look at their benefits and drawbacks.
1. Centralized Exchanges
As the popularity of cryptocurrencies significantly increased over the past years many centralized exchanges have appeared to meet the demand. Typically, they compete with each other by the number of trading pairs. As long as a selected asset can be found on CoinMarketCap this is almost a 100% guarantee if there is at least a single platform where you can buy or sell it.
However, such diversity comes at a cost. The target audience of such exchanges consists mostly of traders which makes the platforms adjust their offers accordingly and doesn’t make it any easier for usual people to get involved.
The drawbacks of this method are as follows:
- Complicated interface. An unprepared user may easily get lost in the abundance of indicators, graphs, orders, and other elements.
- Fees, fees, and again fees. In order to make a simple transaction and exchange one cryptocurrency for the other, you would have to pay at every step of your journey, from the deposit to final withdrawal. Although centralized exchanges usually declare their conditions in an explicit way, their opaque nature leaves a lot of room for manipulations. Thus, you may never know what sum you will receive in your wallet at the end.
- Complicated KYC procedure. On some exchanges, the verification process is pretty difficult and it may take days, weeks, or even months for a new user to receive their account verification.
- Price fluctuations. As the volatility of cryptocurrencies is pretty high, the price of an asset may change even in a short period of time when you conduct a transaction. Your order may not be completed and you will have to repeat the procedure again to push the transaction through.
- Regional limitations. As cryptocurrencies are still mostly in the gray area, there are many regions that ban exchanges, so it may be a challenge to find a platform that would operate in your area.
2. Decentralized Exchanges
DEXs were invented in the first place as an alternative to centralized exchanges and indeed have managed to overcome some of their issues.
They do not require any verification as the funds are simply transferred between users’ wallets. Being ‘decentralized’ they do not depend on any central server and are accessible anywhere in the world.
However, decentralized exchanges have some serious drawbacks as well:
- Low liquidity. The popularity of decentralized exchanges is low which impacts their liquidity in a negative way. If you want to exchange a really big sum it would be a big challenge.
- A small variety of assets. Typically, DEXs attract projects that don’t have sufficient budgets to get listed on major centralized exchanges. The variety of coins that are available for trading there is pretty small and in most cases, these are the assets that are not very well known to the public.
Over-the-counter exchanges or shortly OTCs are, perhaps, the easiest way for a non-tech-savvy user to exchange cryptocurrencies. Typically, they are integrated with centralized exchanges via API and provide their users with a simple interface without all these confusing graphs.
However, this coin has its dark side as well:
- Opacity. While OTC’s conduct transactions through centralized exchanges, the whole process remains totally opaque. Users may never know the final exchange rate and may fall victim to manipulations.
- The worst rate. As OTC’s add their own fees on top of every transaction, the eventual rate would be much worse than with centralized exchanges.
Kriptomat Offers a Solution
Here at Kriptomat, we have developed our own way of exchanging cryptocurrencies that would eliminate the problems associated with all the methods mentioned above and make the whole process so much simple for an end-user.
Here’s what makes us stand out:
- Simple and user-friendly interface. With Kriptomat, exchanging cryptocurrencies is as easy as 1-2-3. We do not overwhelm our users with complicated graphs and strive to make the process as simple as with any other traditional payment application.
- The rate won’t change during the transaction. We cover the risks associated with the volatility of cryptocurrencies on ourselves and guarantee that the final exchange rate will not be different from what you see at the beginning of your journey.
- No hidden fees. No extra fees will be charged on top of what you see when initiating a transaction.
- Popular assets. We support more than 30 popular cryptocurrencies including EOS, Litecoin, Cardano, and many others (see our cryptocurrency price table).
- Security. Our company is legally registered in Estonia, which provides favorable conditions for blockchain startups. To improve the security of crypto assets passing through our platform we implement different layers of organizational and technical measures such as multi-factor authentication, SSL certificatation, and more. For all our efforts, we have been awarded the ISO Information Security Accreditation by an independent audit.
Visit our step-by-step tutorial page. The video will show you how easy it is to exchange coins.
And if you’re new to Kriptomat, create a free account and start your journey into the exciting world of cryptocurrency today!