Crypto Swap vs. Exchange: Which One Should You Choose?

Several factors motivate cryptocurrency conversions, ranging from purchasing goods with a specific currency to playing games on crypto casino software. To navigate the logistics of any of these conversions, you need to understand the differences between a crypto swap and a crypto exchange. 

A “swap” and an “exchange” have virtually the same meaning in English. As a result, they’re often considered interchangeable terms. However, this isn’t the case in crypto language where these two terms have very different meanings. This guide explores the concept of crypto swaps and exchanges, exploring how they work as well as the benefits and downsides of each option. 

• A crypto swap allows direct conversion between two cryptocurrencies without an intermediary. 
• Exchanges offer more complex trading options, often involving order books and currency pairs. 
• Swaps are convenient and cost-effective. On the other hand, exchanges offer better liquidity, advanced trading tools, and security but involve higher transaction fees and longer processes.
• Swaps are ideal for quick, simple conversions without profit motives, while exchanges are better for trading with profit considerations, providing more advanced features for experienced users.

Understanding Crypto Swaps and Exchanges

What Is a Crypto Swap?

To understand the differences between swaps and exchanges, let’s start with some definitions. First, what is a crypto swap?

A crypto swap refers to a type of cryptocurrency conversion that involves changing one crypto asset to another directly without any intermediary currency. In conventional conversions, you need to change the original currency to an intermediary currency before purchasing a new currency. For instance, to change from BTC to Ethereum, you would have to sell BTC for USD, and then buy ETH with USD. 

A crypto swap makes it possible to directly swap one currency for the other instead of selling on to purchase another. This is typically carried out on a decentralized exchange or token swap platform. 

What Is a Crypto Exchange?

A cryptocurrency exchange or trade follows the traditional process of currency conversion. It basically involves selling one cryptocurrency to purchase another with fiat currencies. This means there’s an intermediary fiat currency involved in the conversion. 

A crypto exchange happens in a marketplace which can be centralized or decentralized. These platforms connect sellers with users willing to buy their tokens at a specific market price or their preferred price.

For instance, to convert Bitcoin to Ethereum on a cryptocurrency exchange, a user has to sell BTC for USD or any other intermediary currency, and then buy ETH with the USD that they now have. There are two types of platforms for exchanging cryptocurrencies. You can either use a centralized exchange (CEX) or a decentralized exchange (DEX). 

Types of Crypto Swaps

Crypto swaps can be carried out on both centralized and decentralized platforms. Some wallets are also built with swap functionalities that allow users to convert their tokens directly. Here’s an overview of the common crypto swap options.

Centralized Swaps

Centralized platforms like Coinbase or Binance often have swap functions built into them. These platforms are controlled by a centralized system designed to connect users so they can convert their tokens with ease. 

Decentralized Swaps

Decentralized trading platforms built on the blockchain such as Uniswap and PancakeSwap often have features for swapping crypto tokens. These platforms allow direct peer-to-peer token swaps controlled by a smart contract. This smart contract technology ensures that both parties get their coins simultaneously with no intermediaries involved. Decentralized swaps are ideal for users who value privacy over centralized control. 

Wallet-based Swaps

It is also possible to swap cryptocurrencies directly on a wallet. Some wallets such as MetaMask and TrustWallet have swap features that allow users to transfer tokens to each other directly on the wallet platform. Wallet-based swaps allow users to maintain custody of their assets and manage swaps seamlessly without using an external platform. 

Types of Crypto Exchanges

Crypto exchanges are broadly categorized as either centralized or decentralized exchanges depending on how the platform is controlled. Here’s an overview of how these platforms work. 

Centralized Exchange 

A centralized exchange is a crypto marketplace with a centralized server controlled by a central authority. These websites typically have a custodial wallet where deposited fiat currencies and crypto assets are stored in the user’s account. Centralized exchanges charge high transaction fees compared to alternatives.

Decentralized Exchange 

A decentralized exchange operates based on the principles of decentralization. The platform’s operation is controlled by smart contracts with self-executing mechanisms for initiating, validating, and confirming transactions. Decentralized wallets don’t have custodial wallets. Instead, tokens are sent directly from the user’s wallet connected to the platform.

How Crypto Swaps and Exchanges Work

Swapping or exchanging cryptocurrency is a fundamental skill for anyone who uses crypto assets actively. By learning how each of these currency conversions works, you can easily decide how best to exchange one type of cryptocurrency for another to enjoy a seamless experience on your preferred crypto protocol. Here’s a breakdown of the mechanics of crypto swaps and exchanges.  

Crypto Swap Mechanics

As explained above, you can convert a coin to another preferred token directly using a cryptocurrency wallet or a crypto exchange platform with a currency swap functionality. On any of these platforms, the cryptocurrencies are priced directly against each other. This enables users to see how much of the original token they’ll need to obtain their desired crypto token. 

Next, input the quantity of the cryptocurrency you wish to swap and confirm the transactions. Note that token swaps are not reversible so always check the exchange rate and the equivalent value of the cryptocurrency to be received before confirming the swap. Once the transaction is confirmed, the crypto swap platform will automatically execute the order and send the new token to the user’s wallet. 

Crypto Exchange Mechanics

The mechanics of a crypto exchange platform are similar to that of traditional financial markets such as forex or stock brokerage platforms. However, in this case, the commodities are cryptocurrencies. On these platforms, crypto users place buy/sell orders for different cryptocurrencies. The crypto exchange organizes these orders into order books which are then used to match buyers and sellers. 

Exchanging cryptocurrencies on a crypto exchange entails selling one coin to buy another. To sell your first token, you need to place a sell order, which involves disclosing the amount of crypto tokens you have and the estimated price you wish to sell. The exchange will then match you with a buyer whose request matches yours. 

To get a new token after selling the old one, you can proceed to place a buy order. This follows the same process, only this time, the exchange matches you with a seller willing to sell the selected token at your preferred price or the current market price. 

Pros and Cons of Crypto Swaps

Cryptocurrency swaps offer various benefits over conventional exchange platforms which is why they have grown quite popular in recent years. However, they do have a few limitations, especially in terms of security and market volatility. Here are the pros and cons of crypto swaps.

Pros 

• Convenient and faster transactions: Unlike traditional exchanges involving multiple steps, cryptocurrency swaps are carried out in one simple step, which makes it quite convenient. There’s no slippage and users often get better rates for their tokens.
• Lower transaction fees: Crypto swapping involves just one transaction. Eliminating trading pairs reduces unnecessary transactions and the transaction fees associated with them. 
• Access to lesser-known currencies: By swapping their token directly, users can easily find lesser-known cryptocurrencies, to broaden their token portfolio and access interesting projects.

Cons 

• Privacy concerns: Since token swap transactions are conducted publicly, they may expose user transaction history, potentially raising privacy concerns.
• No support: Token swaps are often carried out on decentralized platforms. With no governing body for the platform, finding support when you run into issues will be difficult. 

Pros and Cons of Crypto Exchanges

Pros

• Accessibility and ease of use: Crypto exchanges are generally easy to use. The majority of crypto exchange platforms have an intuitive interface focused on simple and convenient crypto trading. 
• Liquidity: Cryptocurrencies connect a large number of buyers and sellers. This makes it easy for users to find other parties interested in buying or selling their tokens. Liquidity also promotes access to fair market prices on the exchange platform, which is necessary for profitability when you trade cryptocurrencies. 
• Security: The best crypto exchanges have security features and protocols to protect users and their funds. This is particularly true for decentralized exchanges without custodial wallets. Many centralized exchanges also have features like advanced encryption and two-factor authentication to protect user accounts. 
• Access to trading tools: Beyond just buying and selling tokens, crypto exchange platforms often have robust trading and investment features. 

Cons 

• Volatility: One of the main problems of buying and selling cryptocurrencies is volatility or price fluctuations. The value of the crypto token you intend to buy can change within a short time. This can lead to a difference between the sales price of the previous token and the cost of the new token. 
• Fees: Cryptocurrency exchanges charge transaction fees for different services including trading, currency conversions, deposits, and withdrawals. All of these costs can add up quickly when exchanging tokens. 
• Technical difficulty: The process of changing one token to the other on an exchange involves multiple steps, which might be difficult for users to understand. 

Best Platforms for Swaps and Exchanges

These days, there are no numerous platforms for exchanging cryptocurrencies either through swap services or exchanges. They differ in terms of ease of use, transaction processing fees, conversion rates, and features.

By understanding the differences between these platforms advanced traders can take advantage of their price differences using crypto arbitrage bots and other advanced trading techniques. Here’s a list of some of the leading platforms for conducting crypto swaps and exchanges. 

Best Crypto Swap Platforms

• Changelly 
• ChangeNOW
• SwapSpace 
• StealthEX 
• SimpleSwap 

Best Crypto Exchange Platforms

• Coinbase 
• Binance
• Crypto.com 
• Bisq

Comparison of Crypto Swaps and Exchanges

Purpose 

Crypto swapping and exchanging can have the same end goal, but they’re typically carried out for different purposes. In most cases, people swap their tokens to diversify their portfolio, avoid volatility, or leverage the benefits of a specific crypto protocol. There’s generally no consideration for profit in swaps. A crypto exchange on the other hand is mainly done for profit. Most traders exchange crypto to earn a profit based on the difference between the buying and selling price or the difference in the value of two tokens. 

Process/Mechanism 

Swapping crypto is a simple one-step process. Unlike an exchange which requires multiple steps including KYC verification, a swap simply involves providing the crypto swap platform some information about the asset you wish to swap. This information is then used to match the user with a suitable party for a currency swap. The tokens are swapped directly without involving a fiat currency conversion. On the other hand, a crypto exchange is fiat-currency based. It involves selling and buying crypto assets with fiat currency. The trader indicates their intention to sell and a price, which is added to an order book used to match sellers to buyers. 

Fees

A crypto swap is more affordable compared to an exchange. For crypto swapping, there are no network fees or exchange fees to pay. While the cost of a crypto exchange typically varies from case to case, it generally requires more fees especially when you use a CEX for the exchange. 

Choosing Between Crypto Swaps and Exchanges

In the crypto ecosystem, choosing between a crypto swap and an exchange depends on the specific purpose of your cryptocurrency conversion and a few other factors. Generally, if your goal is to simply change one crypto token to another without considering the value difference or making a profit, swapping crypto is the simplest approach you can follow. A crypto exchange is typically used by people who want to sell and buy crypto tokens for profit. Some of the key differences and other factors to consider in choosing between both options include: 

Convenience 

Crypto swap platforms are simple to use. The swap process simply involves connecting your wallet and choosing the currencies you want to swap after which you confirm the transaction. Currency exchange is more complex. It is similar to traditional trading systems, with charts, trading orders, and cryptocurrency pairs, all of which can make the process more complicated. 

Speed 

If you’re looking to exchange one cryptocurrency for another quickly, then a crypto swap is recommended. The only downside here is liquidity which can affect the value of your tokens. Since crypto exchanges typically have a larger user base and several trading pairs, it is easier and faster to find someone to buy or sell your cryptocurrency to without a significant impact on price. 

User Experience

Cryptocurrency exchanges are similar to conventional trading platforms in how they work. They often come with advanced features like display charts, order books, and other trading features. Crypto swap platforms offer a simpler experience. If you’re a beginner with cryptocurrency, you’ll find them easier to navigate compared to crypto exchange platforms. 

Conclusion

A cryptocurrency swap and exchange are similar since they both facilitate the conversion of digital assets. However, crypto swaps are more direct and cheaper. Choosing the right method of currency exchange is important for anyone working on a software development project that involves changing from one token to the other.