What is a cryptocurrency exchange?
A cryptocurrency exchange is where users can buy and exchange one cryptocurrency for fiat currency. Some exchanges only allow crypto to crypto transactions. In both cases, the digital marketplace operates as an intermediary between buyers and sellers of the cryptocurrency. Clients can deposit money via bank transfer, wire, and other methods of deposit. However, they often pay a commission fee for each transaction.
Which cryptocurrencies do exchanges use?
The most popular cryptocurrency is Bitcoin (BTC). But along with bitcoin, the exchanges offer Ethereum, Ripple (XRP), Lite coin (LTC), Libra, Bitcoin Cash (BCH), and Monero (XMR). These are the most important digital money other than bitcoin.
What is cryptocurrency?
Cryptocurrency is an internet-based currency secured by cryptography. Most cryptocurrencies are decentralized, meaning they are based on blockchain technology – a network distributed through computers. Its decentralized nature prevents from control by governments. The word “crypto” comes from the encryption techniques that secure the network.
How do crypto exchanges work?
They exchange one cryptocurrency for another, the buying and selling of coins, and the exchange of fiat money into crypto.
Crypto exchanges define the rate of the currencies, both coins and tokens. The cryptocurrency rate often rests on the actions of sellers and buyers. Yet there can be other factors that impact the price.
Various crypto exchanges may cater to different options and functions. Some of them are meant for traders, while others for crypto-fiat exchange. As a trader on a crypto exchange, you can buy crypto and sell them with lower commission fees than on crypto-to-fiat exchanges. Besides, trading platforms charge fees for withdrawing money from the account.
Generally, crypto exchanges work similarly to regular stock exchanges. However, on a stock exchange, traders buy and sell assets to profit from their changing rates, while on crypto exchanges, traders use cryptocurrency pairs to generate income from the highly volatile currency rates.
What is cryptocurrency pairs?
Trading pairs of cryptocurrencies allows you to earn money from the currencies fluctuating rates.
Yet the order of currencies in the pair always matters. For instance, if you expect that BTC may increase against USD in the near future, you should buy the BTC/USD pair — with BTC first place and USD second — and vice versa; if you think that BTC may fall against USD, in which case the order of purchase should be the USD/BTC pair.
Some popular exchanges don’t use fiat money altogether by offering pairs only in crypto. However, there are plenty of crypto exchanges that allow transactions with USD and euro.
Why do crypto exchanges have different prices?
The reason for that is that exchanges are not connected. The prices reflect the buy and sell activity on each one of these exchanges. Every exchange calculates Bitcoin’s price based on its volume of transactions, the supply, and the demand of its users. Therefore, the bigger the exchange, the more market-based price you get. However, some exchanges use their own price index for BTC, ETH, and other currencies calculated as an average value based on the prices of the most popular crypto converters.
Keep in mind that there is no such thing as a fixed price for Bitcoin or any other coin; the market always determines it at each particular moment.
How to buy/sell and exchange a cryptocurrency?
To buy cryptocurrency, a user must get registered at one of the exchange platforms and go through the verification procedure. Once verified, she or he will be able to buy/sell and exchange cryptocurrencies with different payment methods.
How to get verified?
Usually, when you register at one of the exchangers and confirm your email, you will have to undergo different levels of authentication. Tier 1 often asks you to provide your full name and address, personal identity documents, and a high-quality photo of yourself holding the same document. As for Level 2, you will have to provide your bank account statement with your name, last name, the name of the bank, and your account number. However, the verification requirements might differ for each cryptocurrency exchange.
What are the limits?
Limits refer to transactions and payment methods; these depend on the verification level of your account. You can increase your ability to buy/sell and exchange cryptocurrencies to real money by completing Level 2 or Level 3. While some crypto exchanges use 2-layer verification, others might resort to three and even four tiers of authentication.
How to choose the best crypto exchange?
When looking for the right exchange, you need to look into a few attributes. First, the exchange must be legal, must have a good reputation, and security measures. For example, look for an HTTPS certificate, make sure the user can set strong passwords as well as whitelist specific IP addresses. Two-factor authentication also must be part of the trusted crypto exchange. Secondly, you need to pay attention to deposit and withdrawal fees. While most exchanges don’t charge high fees, some can take a bigger slice of a pie than others.