Crypto currency Exchange or Bitcoin Market
What does Crypto Exchange mean?
While traveling from one country to another, you have to get the currency in hand exchanged for that of the country to which you are traveling. For this there are exchanges at the airports or at various banks. Similarly, cryptocurrency exchanges are platforms where you can exchange one cryptocurrency for another or even for Fiat currencies, according to their values. The difference between the Fiat currency exchanges and cryptocurrency exchanges is that the latter is completely online. These digital marketplaces allow people to buy or sell cryptocurrencies for other coins or liquefy them. Thus, these exchanges are very similar to stock exchanges in their function.
The Digital Currency Exchanger or DCE is the market maker that enables these exchanges. They mediate the transfer of legal tenders into cryptocurrencies or one crypto coin into another. For carrying out these exchanges they charge certain commissions, which may be in the form of fee, cryptocurrencies or taking the bid/ask spread.
Bitfinex, Bitstamp, Kraken, LocalBitcoins and Coinbase are some of the more popular cryptocurrency exchanges presently.
Types of Exchanges
Generally there are four types of cryptocurrency exchanges available. They are:
1. That are Traditional Cryptocurrency exchanges?
These exchanges are termed traditional because they are more like the more like exchanges of old cryptocurrency than any other. The buyers and sellers make exchanges based on the current value of the cryptocurrencies. These exchangers play the middle man and charge a certain amount of fee for mediating the transfers. There are exchanges that deal only with cryptocurrencies or openly the transfer of cryptocurrencies into Fiat currencies like U.S. Dollars or Euros. Again, there can be traditional exchanges with a middle man to sort out possible issues. An example for the same is Kraken or GDAX. Then there are the pellet to peer exchanges which enables buyers and sellers to deal with each other without mediators. Ether Delta is an example of peer to peer cryptocurrency exchange.
2. Who are Cryptocurrency Brokers?
The Brokers can be more or less equated to the airport money exchangers. The broker sets the price of exchanges for each currency in this case. The buyers and sellers then do their exchanges at this fixed rate, independent of the market prices. The plus is that there an added premium amount for the value of each cryptocurrency in addition to the market price when dealing with brokers. The total amount of these types of exchanges vary only slightly in comparison so the buyers or sellers do not suffer huge losses. It is most definitely, the easiest method of cryptocurrency exchange available at the moment. Coinbase and Shapeshift are examples of such cryptocurrency exchanges.
3. What are Direct Trading Platforms?
These peer to peer cryptocurrency exchanges differ as they seldom use an exchange platform as such. Rather the entire dealing takes place directly between the seller and the buyer. Another point to be noted is that the price of exchanges in direct trading platforms may be different from the market prices. They are more than often fixed by sellers themselves. The platform acts as more of a place to match sellers and buyers who agree on exchange rates. The dealers can do an Over the Counter exchange or simply notify the platform of the rates at which they are willing to make an exchange. The platform will find corresponding dealers for you. This is a highly risky method of exchange and you need to do a thorough research on the authenticity of the platform before going ahead with transactions. But in regions where no other options are available for exchange, direct exchange between the dealers is the only way to do it. To avoid losses, you should first check on the market price before you make a bid. This will help you take informed decisions before exchanging cryptocurrencies.
4. What are Cryptocurrency Funds?
The Funds are one unique way for anyone to invest in cryptocurrencies without having to buy them or store them securely. The funds are basically pools of cryptocurrency assets that are professionally taken care of. This relieves the investors from the responsibility of safeguarding their currencies online from any hackers or cyber-attacks. The public can buys or sell via the fund easily.
What to Look for in Crypto Exchanges?
An exchange with a better reputation can offer the best security for the exchanges through them. There will be minimal chances of both frauds or hacking. They have earned the reputation through many successful ICOs and exchanges over time.
2. What is Crypto exchange Fees?
Most exchangers charge a certain amount fee for mediation of the exchanges. Look for the fee before you sign up with any particular exchange. Anything above a 3% of the profit is an unacceptable amount for transaction fee.
3. Verification process
The best exchanges provide secure verification before you can engage in trade within the platform. This ensures that only genuine parties will be taking part in the exchanges. They usually link passports or such internationally valid proof of the traders with their accounts.
4. Geographical restrictions
It is to be kept in mind that not every exchange has offers of service in all the countries of the world. Some are limited to a select few nations. This could limit your chances as well. So check the geographical limits of the exchange before you sign up.
What are Different crypto currency features Offered?
Certainly, crypto currency exchanges are a very positive addition to the world of digital money. They are one of the reasons why it is not such a bad idea to invest in cryptocurrencies in the first place. Let’s take look at the specific advantages that we, as buyers and sellers, enjoy because of these exchanges.
1. Variety of coins
The most attractive feature of any cryptocurrency exchange is the variety they offer in exchanges. You can practically trade the coins for any other cryptocurrency currently in market. They also have options of numerous Fiat currencies for exchange. This means you can take advantage of the fluctuating values of various centralized currencies. If the value of the pounds are higher than dollars then you can exchange your crypto coins for pounds to earn a higher profit. This variety is almost impossible to be found if there were no cryptocurrency exchanges at all.
2. Security in the transactions
Most cryptocurrency exchanges take maximum measures to avoid fraud. They ensure that neither the buyer nor the seller is cheated out of their assets during an online transaction. Most of the time, the seller’s coins are held in secure locations by the exchange platform so the transaction could be completed once the buyer deposits the amount properly. This is the easiest method to check frauds in the field of digital money. Without such platforms, the buyers and sellers would both find it a Herculean job to find genuine people to conduct business with. The fake profiles out there can easily corrupt the whole exchange system.
Imagine a scenario where you have some cryptocurrencies which you would like to exchange for cash because of an emergency. The only way you can do this without the exchange is by advertising about the intended exchange in online platforms, hoping some genuine buyer would come up. Even if a buyer does materialize easily, you can never be sure if the person at the other end is reliable or not. You will have to blindly believe that they will send you the money once you have given the coins. The exchanges have played a significant role in making the cryptocurrencies more reliable than they once were.
3. They make the cryptocurrencies more liquefiable.
More and more people are now entering into the cryptocurrency trade because it has become an easily liquefiable asset, all thanks to these cryptocurrency exchanges. These platforms are increasing the liquidity of exchanges by providing the above mentioned factors- variety and security. Simply advertising online and waiting for a suitable buyer can be an extremely tedious job. It is also very time consuming as there are low chances that every buyer out there would see the advertisement. The exchanges solve such issue by providing a common platform through which coins can be exchanged for other coins of fiat currencies with ease. They give a buyer and sender assurance that these coins can be liquefied as soon as they need the cash.
4. The issue with new alternative coins is that they take time to get into the mainstream market and gain popularity. One of the reasons for the success of bitcoins is that they were the first to hit market and at that time had to face little or no competition. But the present market is overflowing with various types of crypto coins. And, new coins are being introduced every day. With many coins to choose from, many of them go unnoticed in the markets. The exchanges are the sole platform that gives equal representation to all the cryptocurrencies.
As new coins get introduced into markets through ICOs, the exchange gives you an opportunity to buy them at the start. Later, when their values increase by manifolds, you can liquefy them or exchange them for other coins. Most of the ICOs are launched through these cryptocurrency exchanges so an ICO will be hard to miss if you watch the market regularly.
Even with all the above mentioned advantages, the cryptocurrency exchanges are not impervious to threats that linger over the whole digital money market- hacking. As their value increases by day, so does the threats on their security. Anything of value will always have the foxes close by. The same goes for the cryptocurrencies. Since these are encrypted programs that are used in place of money, a hacker who is even better than the original programmer can hack through the levels of encryption to steal these currencies. They can duplicate currencies or loot the owners of all cryptocurrencies.
The value of cryptocurrencies have touched the billion mark in the world market by now. Thus, more people are looking towards it as an option for investments. When the Bitfinex exchange, one of the largest cryptocurrency exchanges in the world was hacked, it cost the people millions of dollars’ worth crypto coins. Such attacks are hard to be traced so the loot goes with the thief. As a result investors have to suffer heavy losses. No part of the investor can be retrieved once they are hacked. This is the most prominent issue that makes everyone hesitant to investing in cryptocurrencies. This is also the reason why several nations, like Singapore, object to exchanges in crypto coins and have banned them.
How much are the Chances of Fraud vis-a-vis Cryptocurrencies?
Another negative side of the cryptocurrency exchanges is the possibility of pump and dump crypto coins utilizing flaws in cryptocurrency technologies. Of late, it has become a common practice in the market for a group to come and introduce new coins. Once they have given enough publicity to the new coins through online media and social media pages, they announce an ICO. The buyers are always eager to buy a new coin in hope of reaping huge profits as they become known and their value increases. They buy these coins and after a while they turn out to be pump and dump coins. The group that introduced them will gain profits through the ICO and once they have attained their goals they will drop the coin entirely. Its value will go down and everyone who bought the coins will suffer losses.
The exchanges, in reality, have no way to check the viability of the new coins that they allow into the markets. They have no means to do a thorough background research every time a new coin is launched or an ICO is announced.
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Also, there is the ever-present issue of reliability of the buyers and sellers. Since it is an online exchange, you will never get a chance to meet the opposite party in real life. They could be from any part of the world and you will have to trust them on their word. The exchanges narrow down this possibility marginally yet it is there. The exchanges always invest in heavy security measures but not all of them do. There are cryptocurrency exchanges that do not mediate between the parties, such as the peer to peer exchanges. One always has to rely on their instincts during exchanges through those platforms.
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