How digital currency exchange works
A digital currency exchange is an online service which allows its users to trade digital currency assets. Users can open an account and deposit a supported fiat currency or cryptocurrency into their account balance. With this balance, users can trade with other users using buy and sell orders supported by the exchange software, which will match buyers and sellers when their preferred conditions and prices are met. Exchanges charge a broker’s fee for handling your transactions. And there you have it; you are a cryptocurrency holder and investor!
The exchange can also serve as an advisor. The web pages of exchanges offer charts and statistics that show how a certain currency is performing—and if you’re having trouble sorting through all that info, your exchanger, or broker, will be more than happy to translate them into easy-to-understand terms. Knowledgeable brokers watch trends and market fluctuations, and pass advice and recommendations on to their investors.
Most exchanges offer wallets for the storage and maintenance of your digital currency accounts. With your wallet, you can check your account balances and make transactions with other investors and merchants who accept cryptocurrency for payment. Holding a wallet with an exchange is not necessary; you’re free to shop around and find a wallet that more closely fits your needs elsewhere. However, if you do sign up for a wallet with your exchange, do enquire about their security precautions, and if your wallet is stored offline when it’s not in use—this is important to stop hackers from gaining access to your investment.
To store digital assets, the exchanges use a combination of hot and cold storage systems. A hot wallet is a storage system connected directly to the internet, which includes all the keys required to sign transactions. Hot wallets are convenient and necessary for real-time withdrawals and transactions, but are as inherently vulnerable as the server upon which they reside. To mitigate the risks of storing digital assets online, companies make use of cold storage systems. Cold storage systems preserve digital asset keys offline. Many exchanges keep large amounts of digital assets and their corresponding keys in cold storage as an insurance against hackers.
Exchanges trading the most significant volume are as follows, but this can vary significantly.
- Coinbase – BTC, ETH – Founded in 2012 and headquartered in San Francisco, Coinbase has two core products: a Global Digital Asset Exchange (GDAX) for trading a variety of digital assets on its professional asset trading platform, and a user-facing retail exchange of bitcoin and Ether for fiat currency.
- Bitfinex – BTC, LTC, ETH – Founded in 2013 and headquartered in Hong Kong, supports different fees based on value of USD traded. Features include margin trading and funding, a plethora of order types, segregated wallets and a vast API platform.
- BTC-e – BTC, LTC, ETH – Founded in 2011 and based in Russia, There is no fee for depositing bitcoins but there is 0.01 BTC fee to withdraw bitcoins.
- Bitstamp – BTC, XRP. – Bitstamp was founded in 2011. It allows money to be deposited through the European Union’s Single Euro Payments Area, a convenient way of transferring money between European bank acco
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