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November 20, 2022

Crypto To Crypto Swaps Explained

Crypto To Crypto Swaps Explained

To date, there are over 7,000 cryptocurrencies to choose from. As there’s such a vast choice, you’ll likely come to a point where you want to diversify your portfolio, try new cryptocurrencies, and get excited by new projects. For some cryptocurrencies, you can do what you did originally – use dollars to buy coins.

However, we’re going to talk about swapping crypto and how crypto swaps work. When we say swapping crypto, we mean using crypto you already own and exchanging it for a different digital currency.

As a newbie, it can be an incredibly confusing process. Frequently, people will convert their existing crypto back to fiat currency, then buy a different crypto with dollars again. While this works, it doubles up on transaction fees and takes more time.

Let’s get down to how to swap one crypto for another and discover why you might want to do it.

Crypto Swaps vs. Trading

As mentioned, swapping crypto for another crypto is an alternative to buying with dollars. It’s also different from trading. When trading, you’re limited to the spot price offered by an exchange. Furthermore, you’re restricted to the pairs offered by a particular exchange.

On the other hand, a cryptocurrency swap can take place using any crypto of your choice. Perhaps you’ve bought ETH, but want to invest in an altcoin you can’t find on an exchange – swapping crypto is your best option.

In addition, the swap feature can be used for fiat and crypto, enabling people with zero trading knowledge to get into the crypto space.

How To Swap Crypto

There are multiple ways and platforms individuals can use to swap cryptos. They have varying levels of difficulty and are suited to different situations. The ability to swap crypto is a major selling point for most exchanges. When researching your chosen exchange or crypto wallet, you should ensure they have crypto swapping capabilities.

You may not care for swapping now, but as you learn more about the industry and your knowledge of other coins develop, you may decide swapping is the right thing to do. If you already chose a platform that enables swapping, you’ll make your life easier.

CEX: Centralized Exchanges

Let’s talk about the most popular platforms for crypto beginners. A centralized exchange, such as Coinbase and Binance, offers crypto swapping functionality. However, as discussed above, they can be limited in the cryptocurrencies they offer. If you’ve uncovered a particular altcoin you want to swap for, a CEX isn’t the best platform to use. However, if you’re holding BTC and want to swap from ETH, they’re ideal for this.

With a centralized exchange, all crypto is held on their platform rather than in your own wallet. So, you’re never actually in control of your funds. As a new investor, the usability and convenience of a centralized exchange are profound.

DEX: Decentralized Exchanges

Next up, let’s talk about the more complicated DEXs. Decentralized exchanges are platforms that facilitate peer-to-peer crypto swaps. Essentially, a DEX removes the need for a middleman, such as a CEX, bank, or financial service.

To ensure accurate and fair swapping, DEXs use smart contracts that ensure transactions are online finalized when both parties have fulfilled their contractual obligations. Essentially, you send them the crypto you want to get rid of, and in return, they’ll send the crypto swap to your wallet address.

With this method, your cryptocurrency is always in your possession and under your control.

Crypto Wallet

Some crypto wallets offer a crypto swapping facility, meaning you don’t need to use either type of exchange. Often, this is the most convenient and secure method of swapping as you maintain complete control throughout the process, and you don’t need to use a third party to facilitate the transaction.

As soon as the swap is completed, you instantly retain 100% control over the new crypto as it goes directly to your wallet.

Why Swap Cryptocurrency?

Profit

One of the main reasons people choose to swap crypto is to make a profit. As the market is incredibly volatile, if you predict market conditions effectively, you could swap crypto that is about to fall in price for one that will skyrocket. It isn’t an exact science, and there are many variables, but crypto swaps are an effective way of generating profit.

Diversify Portfolio

As with most investments, it’s not wise to keep all your eggs in one basket. Usually, investors spread their wealth across a portfolio of assets – this is the same with crypto. If you have a large volume of one cryptocurrency, swapping enables you to diversify your portfolio.

You should consider diversifying to avoid the catastrophic impact of a large fall in price of the crypto you hold.

Staking & Passive Income

Do you want to generate a passive income stream but don’t hold a cryptocurrency that offers staking? If you’re unfamiliar, staking is a way of locking your cryptocurrency into the blockchain to be utilized by the network to verify transactions and keep it secure. In return, you’ll receive a percentage yield.

In Summary

There are many benefits to swapping crypto and channels you can use to facilitate transactions. However, it’s up to you to decide if it's the right thing to do. It can be an incredibly seamless process that enables you to expand your portfolio and generate profit. However, if done incorrectly, it can be detrimental to your investments.

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