What are the differences between crypto swap and exchange? Though crypto swap and crypto exchange may sound very similar, these are pretty different in the real sense.
Most of the people are unaware of it and quite naturally you may be one of them. Well, here is an article that will let you know about the differences so that you can decide whether you should swap or exchange your crypto for better results.
Crypto swap is usually done between two different types of crypto coins by using the private key wallet and your trading account.
For example, if you own some BTC in your private key wallet and trading account, you can swap it with ETH. This is called BTC-ETH swap.
Crypto swap can be done through a trading account and a private key wallet. The main difference between these two approaches lies in the way the crypto assets are sent for a swap.
In the case of a private key wallet, the crypto coins are sent on-chain and it uses the blockchain of the particular crypto coin for the swap.
On the other hand, the trading account does not do it that way. Instead, trading account swaps are done and settled without having parental responsibility.
8 Differences Between Crypto Swap and Exchange
Coin swapping and exchanging are two different activities that come with their characteristic benefits and should be done according to your needs.
However, if you do not know the differences between these two approaches it will be hard for you to decide which you should perform.
Here is the list of differences for you to make the right decision eventually. Check out Differences Between Trading and Buying Crypto.
Based on the definition, coin exchange is a process in which users can trade crypto coins or digital currencies over a crypto exchange platform or a Digital Currency Exchange or DCE. The crypto coins are exchanged for other assets such as other digital currencies or even for the traditional fiat money.
On the other hand, going by the definition of coin swap, it is a mechanism that is used to move crypto coins from one blockchain to another.
2. Fiat Money Requirement
Since swapping crypto coins involves a change in the blockchain, usually there is no fiat money involved in the process.
On the other hand, in the case of crypto exchange, you may either change the coins into fiat or vice versa. At times, depending on the policies of the crypto exchange platforms, you may also have to make a deposit in fiat money in your account to start trading or exchanging crypto coins.
3. Change in Address
Coin swapping is done at a predetermined rate and normally there are no changes in the wallet address. It is a process that usually happens on-chain.
In comparison, a crypto exchange involves sending the coins from one person to another through the blockchain which involves a change of wallet address.
4. Risk Factor
Since crypto exchange means taking out funds from your wallet and sending it to another or vice versa, there is a certain amount of risks involved in it. If, in case, there is a wrong entry in the address of the wallet your money can be lost, and often it may not be recoverable.
In contrast, crypto swap usually happens on-chain and there is no change in the wallet address. Therefore, the risk of making a wrong entry and losing money is pretty negligible.
Usually, the primary need for swapping crypto coins is when the initial blockchain becomes old and incompatible with the new one. By initiating swapping, the old blockchain users are ‘carried’ to the new one.
On the other hand, exchanging crypto coins is done when you want to transfer funds to or receive funds from other parties in a safe, secure, and quick way. Sometimes, crypto coins are also exchanged with other users simply to diverse crypto portfolios as well.
When you want to swap a specific crypto coin with another type of coin, you can do it instantly by registering with a crypto swap exchange, completing the signup registration process, verifying your email, selecting the crypto coin you want to swap, entering the amount you want to swap, choosing the crypto coin type you want to have in exchange, and confirming the swap and the transaction.
On the other hand, the process to exchange crypto coins involves signing up and registering with a crypto exchange to create an account if you do not have one already, creating a wallet, funding your account with fiat or crypto deposit, and start trading.
Typically, in crypto exchange, the platforms usually keep the pool of assets that the users buy or sell to facilitate a trade. Also, the prices for the pairs of assets are more often than not set by the exchanges.
However, on the other hand, when you swap crypto coins, it involves a smart contract on each of the chains of the assets. This contract guarantees that both the parties get paid thereby eliminating the need for an involvement by the exchange.
8. Different Ways
The ways for swapping crypto coins and exchanging coins are also different. If you follow the traditional way you can swap your coins through exchanges but you will have no control of your funds, or you can do it through non-custodial exchanges that do not keep your coins on the platform.
On the other hand, the crypto coins can be exchanged in three different ways. One is through the Centralized Exchanges if you are okay with their high fees, complicated interface and KYC process apart from regional limitations.
You can also do it through the Decentralized Exchanges but these will come with low liquidity and a small variety of assets. You can also exchange your crypto coins Over the Counter though the transactions here are not transparent and these counters also offer the worst rate.
Which is Better to Perform – Crypto Swap or Exchange?
Several users love to swap their crypto coins primarily to enjoy the benefits provided by it which include and are not limited to on-chain and non-custodial trade settlement. The process is quite fast and also does not involve any network fees.
There are also several other reasons to swap crypto coins which are also somewhat relatable with the crypto exchange as well.
These are the desire to own a particular crypto coin that is believed to have a higher growth potential, or get rid of a more volatile coin and own one that is less volatile, or create a hedge against unfavorable real world events.
Though swapping of crypto coins is more like trading, the good thing is that there is no involvement of any exchange or a third party, even if the coins are swapped between two or more peers.
Swapping is more favored among the newcomers in the crypto field especially than crypto exchange. There is a specific reason for this. Typically, beginners gain exposure with BTC coins first.
Later on and over time, they need to discover other types of crypto coins during their journey in the crypto world to gain more knowledge.
This is a challenging process because they need to learn quite a lot of things about a lot of digital assets such as the opportunities and benefits they offer, their respective use cases and more.
Unfortunately, the solutions provided by the marketplace as of now are quite complex and confusing for the beginners who are seldom knowledgeable about the jargon and technicalities involved in the crypto industry.
This makes things even more challenging and daunting for them since they have never transacted with crypto assets before.
This also puts them at a risk of losing all their funds if in any case they make a mistake. Therefore, coin swapping is the best option left to them to get hands-on practice and gain knowledge about crypto coins.
Once you decide to go with coin swapping, make sure that you choose a reliable platform for that matter.
When you choose, emphasize on aspects like security, choice and control. Remember, coin swapping may seem simple but it is needless to say that it should always be done in a safe and secure setting.
There may be a few centralized and decentralized platforms that may not offer you with a wide range of crypto coins to choose from.
Also, they may not allow you to have control over your coins either when the transaction is in the process.
Check these factors and also check the familiarity and usability of the interface so that you have a streamlined and better user experience without fragmentation.
Another good thing about coin swap is that it does not always need to happen via an exchange.
There are a few hardware wallets that come with a dedicated app that you can use to swap your crypto coins without needing an exchange altogether.
The app will do it all for you along with providing security of the top level, impressive speed in the transaction, and low cost.
With all these factors, it may seem that crypto swapping is more feasible and is a good thing to do rather than going for a coin exchange, but, ideally, to put things into short and simple words: your choice typically depends on your needs and preferences.
Coin swapping and exchanging are two different crypto activities. Hope this article has cleared your confusion regarding the two. Now, choose an appropriate platform for performing either of them after thorough research for better results.