Cryptocurrency

What is a Cryptocurrency Exchange?

Cryptocurrency exchanges are also called digital currency exchanges. They are simply businesses set up with the objective of trading cryptocurrencies for other valuable assets. These assets are usually fiat currencies or other digital currencies.

Let us start by assuming you do not know what cryptocurrency exchange means. Maybe you are just getting to hear the word. That may be a bit weird though given the present popularity of digital money. This article will help you understand what cryptocurrency exchanges are, and what it would take you to start buying and selling just easily.

Cryptocurrency exchanges are like many other companies you know. They are not just there to help people by providing intermediary services that facilitate exchange and remove conventional barriers, they could be market makers. The reason for this is that they exist to make a profit too. Without profit, these companies would definitely foldup since they might run the risk of going bankrupt from not having enough funds to continue their operations.

By market makers, we mean a company or an individual that quotes buy and sell prices in his or her inventory, hoping to make a profit from the bid-ask spread. The bid-ask spread is simply the difference between the price a buyer is willing to buy and the lowest amount a seller is willing to sell. For cryptocurrencies, an example would help us understand what the bid-ask spread means properly. Let’s say Bob wants to buy Bitcoin on an exchange platform—Poloniex. On a limited budget, Bob can only afford to pay $9,000 for 1 Bitcoin. Charlie also wants to sell Bitcoins for $8,500 at least. The difference is $500 or about 5.6%. This could be how Poloniex—the crypto-exchange platform gets its profit. Another way exchanges make a profit is by charging transaction fees as a cost of bringing buyers and sellers together. In the first instance where profit an exchange gets from the bid-ask spread, Poloniex used as an example is a market maker.

Majority of cryptocurrency exchanges operate online and usually have physical offices outside Western Countries. The reason for this is that cryptocurrency regulations in these countries are not well spelled-out, and activities of those kinds would easily result in legal issues and unclear prosecutions. To settle international transactions and enable deposits, exchanges maintain bank accounts in countries across nations of the world. Some crypto-exchange platforms accept credit card payment. Some examples are coinbase, Cex.io, Bitstamp, Bitpanda and Bithumb. Others support crypto-crypto transfers, while some others support bank transfers and cash respectively. Cash support by crypto-exchanges is uncommon. Although Localbitcoin and Coin ATM Radar are good examples. Some exchanges convert digital currency balance into a prepaid card for withdrawal of money worldwide.

There might be a little confusion about exchanges, currency creators, and wallets.  Exchanges are separate businesses and run business activities that are completely different from digital currency creators. A wallet is a space for securely storing digital currency. Wallet owners can use it for anonymous transactions at any time. However, it would be good to note that digital currency creators also provide optional wallets and exchange platforms in some cases.

Using cryptocurrency exchanges is easy and access to the platform is mostly free. Exchange platforms also provide optional wallets.

Deciding on the best exchanges to use is often difficult. The reason for this is that have been several fraudulent practices online making away with cryptocurrencies worth millions of dollars. Exchanges are new and because of this, a few people know how to differentiate the genuine from fraudsters.

Security has been the most important questions when choosing exchanges. People value security, they also look out for trust, ease of storage and reputation of an exchange over time.

You could do more research about available cryptocurrency exchanges, but the most popular exchanges with good customer reviews are what is recommended.

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