If you want to explore new and upcoming cryptocurrencies, you might be wondering where to get hold of these interesting assets. As you may have seen, getting your hands on an alt-coin isn’t always easy. Even some more common cryptocurrencies can be hard to get hold of depending on what the exchanges in certain regions can offer.
However, if you have some crypto already, on-ramping into a new asset is not your only option. To get exposure to a new or experimental asset, a great option is swapping a cryptocurrency you already have for something else.
Let’s say you have some $ETH and want a memecoin like $SHIB instead. Well, it’s not as complicated as you think. But before we dive into the details, let’s first explore what a crypto swap is and why you might want to initiate one.
What is a Crypto Swap?
A crypto Swap is a nifty feature that allows you to swap one cryptocurrency for another. It’s similar to doing a currency conversion. Except this conversion is between cryptocurrencies; like Bitcoin (BTC), Ether (ETH), or any other alt-coin you like.
How to swap Crypto
Typically, you’ll need a crypto exchange to swap crypto. However, crypto exchanges don’t all operate in the same way. Let’s look at some of the options you have.
Use a centralized exchange
Most beginners will use a centralized exchange (CEX) to swap assets. Centralized exchanges like Binance and Kraken will allow you to swap one currency for another within their platforms. Often, this swap will be completely free, as centralized exchanges tend to use custodial wallets but that’s not always the case. Since these platforms are centralized, you’ll have to pay the fee of their choosing.
In addition, using a centralized exchange means using their custodial wallets. In other words, you do not have access to the private keys that control your account. Unfortunately using these sorts of exchanges to swap crypto means you don’t have true ownership over your assets. “Not your keys, not your coins”: by using a centralized exchange’s custodial wallet, you risk losing access to your assets should the company go bankrupt or decide to freeze your accounts.
Furthermore, using a centralized exchange wallet to swap your crypto will also involve a lengthy and invasive identification verification process called KYC. Since centralized exchanges are companies, they must register their businesses in their respective countries. This means your CEX wallet will be subject to local laws and regulations.
Then, much like traditional financial institutions, centralized exchanges use an order book system to execute trades. To put it simply, it means each person who buys a cryptocurrency is relying on another participant to sell that particular coin.
Finally, since many centralized exchanges may also have limited functionality. You may not be able to perform certain on-chain transactions, and they may not support your chosen coin. This is particularly true for new and upcoming coins with lower market caps
Use a Decentralized exchange
Your other option for swapping cryptocurrency is to use a decentralized exchange (DEX). Unlike centralized exchanges, decentralized exchanges allow you to use non-custodial wallets, meaning you can swap crypto without forfeiting custody of your assets.
This is possible thanks to the way decentralized exchanges execute trades. Instead of using an orderbook system, DEXs typically rely on Automated Market Makers (AMMs). This mechanism allows you to swap your crypto directly with the system using a liquidity pool. As long as the liquidity pool has enough of the asset you require, you can execute your swap immediately—without having to wait for a user who wants to perform a swap in the opposite direction.
Pros Of Swapping Crypto
Of course, there are plenty of upsides to swapping your crypto. Sometimes swapping is much more beneficial than buying cryptocurrency outright. Let’s look at some of the biggest reasons you might want to swap crypto.
Taking Profits
Swapping crypto is a great way of taking profits. After all, who doesn’t like realizing profits?
To explain, if one of the coins you hold has increased in price, you may want to sell it to cash in on the difference. The problem is that exchanging your crypto for fiat incurs fees: you’ll have to pay gas fees to sell the cryptocurrency in the first place but typically, the exchange will charge you a service fee too.
Swapping your crypto for stablecoins allows you to keep your holdings on-chain and avoid those charges. It also allows you to swap it back to your chosen cryptocurrency as you like. Traders often use this method to take profits as it makes the whole process more efficient and reduces trading costs eating into your profits.
Decentralized exchanges tend not to offer on-ramping services, however, that means they will not require you to undergo a KYC procedure. This is useful for those who want to stay pseudonymous on the blockchain and use crypto without the limitations of local laws and regulations.
