When buying crypto coins, it’s important to know whether to use a Decentralized Exchange (DEX) or a Centralized Exchange (CEX).
In short, decentralized exchanges function to participate in Web3, while centralized exchanges are to on-board money from your bank account.
Centralized exchanges like Binance, Coinbase, Kucoin, Kraken, etc., get paid for being a custodian. They keep track of every single person who uses their platform through KYC (know your customer). You give them a picture of your driver’s license, your SSN, address, and a picture for facial recognition. Every time money/coins flow in and out, it is automatically recorded.
Decentralized exchanges, on the other hand, like PancakeSwap, SushiSwap, SundaeSwap, UniSwap, etc., are like the wild west of crypto. Transactions are peer-to-peer and facilitated through smart contracts. This gives you the benefit of not involving a 3rd party custodian, while it increases self responsibility of securing your own private keys.
You will use both exchanges in your crypto journey. If you have your eye on a coin you can go to coinmarketcap.com or coingecko.com and see which exchange the coin is on. You can then create the relevant wallets. Decentralized exchanges have less fees, so use these whenever possible. For tax purposes, when you are swapping and sending coins and purchasing NFTs in a DEX, you will need to physically document every transaction. But with a CEX, it tracks everything for you.
For example, say put $10,000 in CoinBase, move it to MetaMask and you purchase an NFT that you sell for $100,000. When you move that money back to CoinBase to transfer to your bank account, you will need to have recorded that NFT purchase in order to pay the necessary taxes.
When it comes to fees, I like to on-board my money to the Strike app. It’s like cash app but you can get paid in Bitcoin. You can send your Bitcoin to any Bitcoin wallet, as well. You can move Bitcoin onto a decentralized exchange and swap from Bitcoin into whatever coin you would like. If you want to give Strike a try use this link to get $5 for creating a new account. https://invite.strike.me/GY98J8