What is an exchange?

Cryptocurrency exchanges are online platforms where one type of digital asset can be traded for another based on the market value of the assets provided.

At the moment, the most common exchanges are Binance and GDAX. It is necessary not to mistake the cryptocurrency exchanges for wallets or wallet brokerages in cryptocurrency.

Cryptocurrency wallets and wallet brokerages usually allow you to purchase and sell a limited range of common digital assets (Bitcoin and Ethereum). You can then transfer to another exchange to trade for other digital assets such as altcoins.

Most cryptocurrency exchanges typically restrict their users to merely exchanging digital assets for digital assets, but a few allow fiat currency exchanging

Traditional Cryptocurrency exchanges

These are markets close to conventional stock exchanges where buyers and sellers transact based on the current market price of cryptocurrencies (with the intermediary exchange). Typically these kinds of trading platforms charge a fee for each transaction. Third parties run off exchanges (they have a middle man who can help and fix any problems) and Decentralized Exchanges or DEXs that resemble conventional exchanges such as IDEX. It will require a lot of data in typically centralized markets but often allow fiat trading. DEX markets will not allow fiat trading but require fewer details.

Cryptocurrency Brokers

These are website-based exchanges, which are like an airport currency exchange. They allow clients to purchase and sell cryptocurrencies at a price set by the broker (usually at the market price plus a small premium). The transaction here is between buyer or seller and broker, not between buyer and seller. Coinbase is an example of such an exchange type, and so is the Cash App. Shapeshift also offers a similar service (it allows you to swap for another on the token type). For new users, this is the easiest approach. Despite the ease of use and the effort the broker puts in, you can usually pay slightly higher rates than you do on the exchanges.

Online Trading Platforms

These sites enable direct peer-to-peer exchange between buyers and sellers. Such type of direct trading platforms doesn’t use a fixed market price. Sellers set their exchange rates, and buyers either locate sellers through the website or designate the prices they are willing to buy for, and the website matches buyers and vendors. There are exchanges of this sort that deal with exceptionally large buyers and sellers and the typical buyer or seller; the second category is likely to be found. Many Decentralized Exchanges are of this sort (although some are similar to conventional exchanges, so they are classified in the first category). In certain regions, this form of exchange may be the only solution.  Make sure you search the Coinmarketcap market rates as you don’t buy/sell at a set market price! F See LocalBitcoins.com for an example of a centralized peer-to-peer network that enables the fiat and crypto network.

Cryptocurrency Funds

Funds are pools of professionally managed cryptocurrency assets that allow public purchasing and keeping cryptocurrency through the fund. GBTC is one such fund. You can invest in cryptocurrency using a fund without having to buy or store it directly. You can’t use crypto in a fund as money as a trade-off; these are for investment purposes only.

Anton Kovacic
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