What Is a Cryptocurrency Exchange?

What is a Cryptocurrency Exchange?

A cryptocurrency exchange is a platform which allows you to trade cryptocurrencies as well as other digital assets into fiat currency along with other digital assets.

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The platforms can be businesses which can be market makers that normally take the bid/ask spreads as transaction commissions for their services or simply charge fees as a matching platform.

These exchanges can be physical business, the trade of more traditional payment methods and with cryptocurrencies, or solely online businesses, trading electronically transferred money and digital currencies.

DX Exchange

Types of Cryptocurrency Exchanges

• Traditional Crypto Exchanges: These are the exchanges that function like the regular stock exchanges where buyers and sellers undertake trades depending on the current market price of cryptos (with the exchange being the in the role of the in-between). These kinds of trading platforms normally require a fee for every type of transaction. Some of these kinds of exchanges exclusively deal in cryptocurrency, whilst there are others which let users to trade fiat currencies like the American dollar for cryptos such as Bitcoin. Coinbase’s GDAX is this kind of exchange, and so is Kraken. Of these exchanges, there are some which are run by third parties as well as decentralized exchanges and P2P ones, which do not have someone in between, such as EtherDelta.

• Crypto Brokers: These are exchanges which are found on websites which for like the currency exchanges at an airports. They let customers buy and sell cryptos at a price created by the broker through the market price with a premium as well. Coinbase is a functional demonstration of this kind of exchange.  Shapeshift also offers similar services and these solutions together provides the easiest solution for new users. Despite this these services require you to pay a little bit more than others as they offer simples solutions.

• Cryptocurrency Funds: Funds are vast amounts of  cryptocurrency assets managed by professionals which lets the public buy and hold cryptocurrency through this type of fund. One example of this fund is GBTC. Via a fund you can put money into cryptocurrency without having to purchase or keep it in a direct manner.

• Direct Trading Platforms: These platforms allow for direct P2P trading between buyers and sellers, but don’t use a platform for exchanging like GDAX. Direct trading platforms of this type don’t normally use the fixed price of the market. Sellers choose their very own exchange rate and buyers try to find the  sellers via the platform and undertake an Over the Counter (OTC) Exchange, or they select the rates they are looking to buy for and the platform has to meet the requirements by both of these parties. This solution is rarely the best one, but it can be the only solution in certain places in the world. Ensure to check market prices on Coinmarketcap, to make sure you’re not paying to much for your given cryptocurrency.

Choosing the Right Cryptocurrency Exchange

Choosing the right exchange can be tricky business in the sense that there are many to choose from. There is also the factor of the hacks to consider. Coincheck has undergone vast amounts of government scrutiny since it was hacked, and hackers made of with $530 million of users’ funds. Due to this we need to be aware of certain aspects when choosing an exchange.

There are two types of exchanges on the whole that we should consider. The first is fiat exchange whilst the second is crypto to crypto exchanges. Factors to consider include the fact that certain exchanges will be dependant on the currency that you choose to utilise.

Exchanges that are popular include Coinbase, Bitpanda, Kraken, and LocalBitcoins. Every exchange can offer something different so it can be important to have a look at what each single one can offer before making a choice.

Can I Store My Coins on an Exchange?

Storing coins on exchange can be risky business and it is not recommended unless it is absolutely essential. You can store coins on certain exchanges which may seem convenient, exchanges such as Bittrex and Poloniex work by allowing to both purchase cryptos and utilise them in any way possible. However, exchanges are ultimately prone to hacking, and you’re providing hackers with an easy opportunity to gain access to your funds. Whilst other methods of storage still leave you vulnerable they are at least providing you control of your funds. Some alternative storage units can be found here. Typically wallets provide the most security and control so these are the best to look at.