Cryptocurrencies, which started as decentralized mediums of exchange for the peer-to-peer (P2P) economy quickly evolved into a lucrative investment asset. As such, the importance of crypto exchanges has come to the forefront. Market experts and financial experts alike can’t stress enough how important it is for investors to make good use of crypto exchanges to maximize their earnings.
What are Crypto Exchanges?
Crypto exchanges are online platforms where investors, both big and small, can buy, sell or exchange cryptocurrencies for other digital currency or conventional currencies like the US dollar or Euro.
Like any other exchange platform, crypto exchanges serve as a market marker between buyers and sellers of the cryptocurrency. Here, buyers come to the exchanges with cash (or fiat currency) to buy crypto assets. At the same time, sellers bring their crypto assets to sale on the exchanges.
One of the major differences between traditional asset trading platforms and crypto exchanges is that crypto exchanges like Bitcoin Motion don’t have a physical location. All transactions are done online which makes it possible for exchanges to extend their services to any part of the world.
Furthermore, because cryptocurrency and digital asset transactions don’t go through a clearinghouse like banks, the transaction fees are significantly lower than those taken by traditional exchanges. For example, brokerage firms might charge an average fee of 9% on stock trades while crypto exchanges only charge 1-4%.
Another important difference between crypto exchanges and conventional trading platforms is that there are no physical stocks. The only “products” for sale on a crypto exchange are digital information (cryptocurrencies) stored in a blockchain-based system that you can buy or sell.
How Do Crypto Exchanges Work?
Operating a crypto exchange isn’t as easy as it sounds. There’s a lot of technical jargon and specialized knowledge required to successfully run an exchange platform. The following are some requirements:
- A developer able to create the exchange website (a simple one) compatible with all devices;
- Provide 24/7 support;
- An SSL certificate for secure transactions;
- Post-transaction fees;
- Familiarize yourself with blockchain technology;
- A digital wallet in your name.
A beginner looking to start an exchange platform must be familiar with the basic terminology involved in the cryptocurrency space. Here are some of the most important ones:
- Wallet: This is a kind of virtual bank account where you store cryptocurrencies like Bitcoin. To use the coins stored in your wallet, you must have a public address and private key.
- Public Address: A public address is what identifies your wallet to the network. Whenever you want to receive cryptocurrencies, you provide your public address to another party so they can send crypto funds to your wallet. Your private address is where you receive cryptocurrency.
- Private Key: This is a secret code only you should know and use. It’s an integral part of blockchain technology that ensures you are the real owner of the wallet containing your cryptocurrencies. If anyone else gets their hands on this key, they can access all your funds in your wallet as well as send money from it.
- Exchange Transaction: This is the exchange of one cryptocurrency for another or fiat currency (USD). For example, if you want to trade Bitcoin for Ethereum, this is called a cryptocurrency exchange transaction.
While there’s a lot of hype surrounding cryptocurrency, not many people know how exchanges work. This is unfortunate because if you’re holding cryptocurrencies and want to sell them in the future, you need an exchange platform to do so. Hopefully, this article has answered some of your questions about crypto exchanges.
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