Navigating the logistics of cryptocurrency transactions can take time and effort. So for those who don’t have a “Crypto for Dummies” book handy, we’re breaking down the differences between a crypto swap vs. exchange to help you make the right decisions regarding handling your crypto assets.
The transactional methods of swapping and exchanging cryptocurrency both technically represent a “trade”; beginning with one coin and ending with another.1 Due to their English definitions, the words “swap” and “trade” are often considered interchangeable. However, in the crypto language, the two have very different meanings.
A crypto exchange is the purchase or sale of cryptocurrencies (“tokens” or ”coins”) facilitated by privately-owned trading platforms.2 When trading on an exchange, one crypto is traded for another crypto or a fiat currency based on the current market price, using only the traded pairs offered on the exchange platform.3
Crypto swapping allows for the instant transfer of one cryptocurrency for another of equal value without the need for fiat currency involvement.4
In this article, we’ll walk you through a deeper analysis of the two, so you have a clear understanding of a crypto swap vs. exchange.
What is a Swap in Crypto?
A swap is an instant and simple exchange of one crypto asset for another; you can trade coin A for coin C directly, rather than having to use coin A to buy coin B and then purchase coin C using B.5
Reasons for swapping include building a portfolio, avoiding slippage costs or high transaction fees, or using crypto as a means of payment.6
How to Start Swapping
To swap your cryptocurrency, you have a few different platform options. You can swap directly from a cryptocurrency wallet, like the Bitcoin.com Wallet7 or MetaMask. You could use a crypto payment platform like Kasta to easily convert a crypto payment from the original coin to your preferred coin or a crypto exchange platform that offers swap services.
Think Before You Swap: Things to Know Before Swapping Crypto
Ethereum allows any project to create ERC20 tokens via smart contracts for fundraising, rewards, or governance purposes. While new tokens are often cheap, if not free, it is essential to remember that all transactions made on Ethereum require an ETH gas fee.8
Gas fees are volatile and can be significantly higher depending on the type of token or transaction and the network traffic.
If you plan on swapping on the Ethereum blockchain, be sure you have enough ETH available to cover the fee.
Crypto Exchange Fees
Different platforms may require different exchange fees other than gas. Be sure to research your desired wallet or exchange’s swap information or the FAQ section to know the fees before you swap.9
Double-Check Your Crypto Swap
Always review your expected currency amount for each swap. Some platforms may show the amount in fiat currency value, which may be lower than expected and may not be worth the same amount at a lower date.
Be sure to know the amount of cryptocurrency or token you expect to receive in return for the amount you send. A swap cannot be undone once the transaction is final.
Use the Appropriate Wallet
Not all tokens are compatible with all wallets. If swapping on an exchange, be sure your crypto is compatible with the blockchain(s) supported by your wallet before transferring.
Accordingly, always double check you are sending to or from the correct wallet address.
Liquidity and Slippage
Take into account asset liquidity when using an exchange to facilitate your swap. Swap rates can vary depending on the available currencies, so be sure to research your assets’ trading history, market cap, and reputation before swapping.
Slippage occurs when a trade is executed at a different price than it was initiated at, which is inevitable in such a volatile market. If a platforms slippage limit is exceeded, your transaction or swap can be terminated. Always consider the market conditions before swapping.10
Secure Your Swap
Always authenticate your wallets and account and keep your private keys secure.
Be sure to use trusted exchanges and take into account their centralization level.
Advantages and Disadvantages of a Crypto Swap
- Swapping is a simple, one-step, and instant transaction.
- Eliminating trading pairs reduces the number of necessary transactions, which keeps fees minimal.
- Swapping your crypto may provide easier access to lesser-known or specific desired cryptocurrencies.
- Users can broaden their token portfolio and boost liquidity through token swaps by using their tokens to buy other kinds of tokens.
- Token swaps are public, which may create privacy concerns.
- Custodial Risks – if issues arise with the protocol facilitating your swap, you may risk losing your crypto.
- The lack of a governing body means you have no support if there are issues with your trade, such as using the wrong wallet address.
- Market volatility and slippage can result in losses from your swap.
Best Crypto Swap Platforms
Based on a review by HedgewithCrypto (Dec. 30, 2022)
- Changelly – Best Swap Rates
- ChangeNOW – Best No-Limit Platform
- SwapSpace – Best Website for Ease of Use
- StealthEX – Best for Flexible Crypto Swaps
- Exolix – Best for Instant Swapping
- SimpleSwap – Best for Beginners
What is an Exchange in Crypto?
Exchanges are similar to brokers, providing the platform and tools to buy and sell cryptocurrency.
Crypto Exchanges provide trading services, price discovery, and crypto storage and are continuously active, offering available services 24 hours a day, seven days a week.13
How a Crypto Exchange Works
Once you register for an exchange platform and complete your Know-Your-Customer authentication process, you will have access to various cryptocurrencies to buy or sell.
On an exchange, you can use fiat currency to buy your desired crypto or trade one crypto for another. Other services may include converting your crypto back to fiat, storing your crypto for future trades, or making cash withdrawals.14 The services each exchange provides vary, so be sure to research before choosing a platform.
First, you must fund the crypto wallet provided by your chosen platform. It is recommended that users also create a personal crypto wallet to allow for better security of your funds.
The exchange will provide the trading prices of the offered cryptocurrencies of the platform, as determined by the current market. These prices may vary across different exchanges.
Once you place an order, it is added to an order book with other buy/sell orders, and buyers and sellers are matched through the exchange.15
Remember that most exchanges charge a transaction or service fee that varies between platforms.
Types of Crypto Exchanges
Centralized Exchanges (”CEX”) use third parties intermediaries to oversee and assist transactions, facilitating the buy and sell process based on daily market prices using fiat currency and other cryptocurrencies.
Once deposited, your money is held in the exchange while you monitor the price fluctuations. Crypto is generally offered in crypto/crypto pairings, but platforms such as Coinbase or Kraken also provide fiat/crypto pairings. Using the order book system, exchanges list orders by intended buy or sell price and are matched based on the best executable price.16
CEXs decide which assets are traded, and the price of an asset will depend on the supply and demand of that asset.
Decentralized Exchanges (”DEX”) do not require an intermediary, allowing peer-to-peer transactions directly from your wallet.
DEXs use smart contracts to execute transactions.
Pros and Cons of Crypto Exchanges 17
Pros of CEXs
- High liquidity
Cons of Centralized Exchanges
- Security Risks such as hacking
- Transaction fees
Pros of DEXs
- No custody
- Less censorship
Cons of DEXs
- Liquidity Struggles
- Lack of fiat compatibility
Best Crypto Exchange Platforms
Based on a review by money.com (Jan. 5, 2023)
- Coinbase – Best for Beginners
- Binance.US – Best for Low Fees
- Crypto.com – Best for Security
- Bisq – Best Decentralized Exchange
Crypto Swap vs. Exchange
Always do your due diligence when deciding what type of crypto transaction you want to make. Familiarize yourself with aspects such as regulation/governance, data verification, privacy and security, and transaction fees.
Based on your desired crypto type and value, make an informed decision on whether you should swap or exchange crypto.
If you think you may need legal assistance when dealing with crypto swaps or exchanges, contact an attorney who specializes in cryptocurrency and digital assets.
The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Securities law is complex and highly fact-specific to any given circumstance, and readers should contact an attorney for advice regarding any legal matter.
1What is a Crypto Swap and How Do I Start Swapping?, The BitPay Blog (Nov. 11, 2022), https://bitpay.com/blog/what-is-a-crypto-swap/#:~:text=Crypto swap vs exchange%2Ftrade&text=If taking place on a,amount in value of another.
2How Does a Crypto Exchange Work?, SoFi (Sep. 23, 2022), https://www.sofi.com/learn/content/how-crypto-exchanges-work/.
3What is Swap in Cryptocurrency? A Guide, Kasta (July 14, 2022), https://www.kasta.io/blog/what-is-crypto-swap.
4Supra note 1.
5Saudamini Chandarana Bhat, Coin Swapping Vs Coin Trading, Wazirx (Oct. 5, 2021), https://wazirx.com/blog/coin-swapping-vs-coin-trading/.
7How do I swap crypto?, Bitcoin.com (last accessed Jan. 7, 2023), bitcoin.com/get-started/how-to-swap-crypto/.
8Katya Michaels, How to Exchange Crypto: Five Things to Know Before You Swap, Mewtopia (Sep. 3, 2020), https://www.mewtopia.com/how-to-exchange-crypto-five-things-to-know/.
11Relite Education, Crypto Swapping Guide: How to Earn Profits, Relite (Sep. 9, 2021), https://relite.finance/blog-posts/crypto-swapping-guide-how-to-earn-profits.
12Ayushi Abrol, A Beginner’s Guide To Token Swap, Blockchain Council (Sep. 8, 2022), https://www.blockchain-council.org/cryptocurrency/token-swap/.
13Cryptopedia Staff, What is a Crypto Exchange?, Gemini (last updated June 28, 2022), https://www.gemini.com/cryptopedia/what-is-a-crypto-exchange.
14Supra note 2.
16CFI Team, Cryptocurrency Exchanges, Corporate Finance Institute (last updated Dec. 4, 2022), https://corporatefinanceinstitute.com/resources/cryptocurrency/cryptocurrency-exchanges/, and Kiana Danial, 3 Different Types Of Cryptocurrency Exchanges: CEX, DEX, And Hybrid, Nasdaq (July 12, 2018, 8:20 AM), https://www.nasdaq.com/articles/3-different-types-cryptocurrency-exchanges-cex-dex-and-hybrid-2018-07-12.
17CFI Team, Cryptocurrency Exchanges, Corporate Finance Institute (last updated Dec. 4, 2022), https://corporatefinanceinstitute.com/resources/cryptocurrency/cryptocurrency-exchanges/.