What is Crypto Swap, and How Do I Start Swapping?
As the cryptocurrency space grows, new projects develop their own blockchains and tokens seeking to achieve specific goals. Thanks to the disruptive features of Blockchain technology that enables the creation of custom tokens. Currently, there are over 15,000 active and unique cryptocurrencies in use today.
Some of these tokens are good competitors of Ethereum offering improved scalability, reduced transaction fees and other exciting features. Others are created to be used as governance, security or payment within decentralized applications such as crypto lending protocols.
Ultimately, this diversity of options breeds the need to exchange one cryptocurrency for another — similar to how we exchange dollars, euros and yen.
Read this guide to learn about the concept of Swapping Cryptocurrencies and how it works.
What is Crypto Swapping
Simply put, Crypto swapping involves exchanging cryptocurrencies for their equal value in another coin or token. There are different ways to swap cryptocurrencies with decentralized exchanges. Usually, in traditional finance, swapping one currency can be pretty challenging as it will have to go through several processes before banks confirm the transaction. However, with crypto, users can directly swap crypto assets for another without any third party, such as banks or the government.
Additionally, with a centralized crypto exchange, users can easily swap their crypto assets. For example, suppose you have $100 in Ethereum (ETH), but you prefer to receive Bitcoin (BTC) to build your crypto holdings. In that case, you can easily use the feature so the app would automatically exchange any ETH you have into BTC.
How Does Crypto Swapping Work?
Swapping is an everyday trading activity among crypto users, so services of various types and volumes now offer swap trades. It’s pretty similar to trading but with more convenience. You can easily swap any cryptocurrency for another without paying transaction fees more than once. And it’s applicable to any asset volume.
There are three major places to swap crypto:
- Within a wallet
- Decentralized exchanges
- Centralized exchanges
The security level and supported crypto assets may vary depending on the platform.
Why Do you need to swap from one Crypto to another?
While most traders intend to hold their cryptocurrencies for an extended period, there are several reasons to swap your cryptocurrencies. Now, why would you choose to swap your crypto assets?
- Convenience
While trading cryptocurrencies might be a bit daunting for new users just gaining a foot into the digital assets field, crypto swap provides a simplified solution that involves only one step.
Traders only need to input accurate details, and the swap platform will work the process out.
- No Exorbitant Fees
When trading Ethereum, for example, you might need to pay network fees (gas fees) as well as exchange fees. Each transaction incurs different fees, which have a direct impact on profitability.
Since swapping is just a single transaction, fees are nearly zero.
- Fast transactions
The cryptocurrency market is well-known for its volatility. While trading comes with Slippage, spreads and other factors that can affect users’ potential profits, swapping essentially gives traders a swift response over their trades.
Risks of Crypto Swaps
- Slippage
One of the significant risks attached to crypto swaps includes Slippage. Typically, a slow transaction speed will lead to Slippage.
- Privacy and Security
When you swap tokens, the transaction is completed on a blockchain network. For some swapping platforms, this is a secure, private environment on par with cryptocurrency exchanges. At the same time it can be an issue if a centralized exchange is breached.
Wrapping Up
While there are several benefits attached to swapping cryptocurrencies, there are other risks, such as Slippage, security, availability of cross-token swapping and more. Therefore, it’s essential to do your own research before getting started.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
