A cryptocurrency exchange or digital currency exchange (DCE) is an exchange where we can buy or sell cryptocurrencies. It is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. We can trade them using electronic monetary units, fiat currencies, or other digital assets. A cryptocurrency exchange can be a market maker that typically takes the bid-ask spreads as a transaction commission for is service or, as a matching platform, simply charges fees. A digital currency exchanger is a person or business that acts as an online market maker and exchanges legal tender and other electronic currencies for electronic currencies, and vice versa, for a commission.
Digital currencies operate as self-governed currencies, unlike fiat money, which is legally sanctioned by a government. Digital currency exchange can be a brick-and-mortar business or a strictly online business. As a brick-and-mortar business, it exchanges traditional payment methods and digital currencies. As an online business, it exchanges electronically transferred money and digital currencies. Most digital currency exchanges are privately held businesses, which makes access to financial information and company management troublesome. Exchanges may accept credit card payments, wire transfers, or other forms of payment in exchange for digital currencies or cryptocurrencies. Exchangers may also accept payment by credit card, cryptocurrency, wire transfers, money orders, and other payment methods.
Types of crypto exchanges
- Trading Platforms – These are websites that connect buyers and sellers and take a fee from each transaction.
- Direct Trading – These platforms offer direct person to person trading where individuals from different countries can exchange currency from their bank account.
- Brokers – These are websites that anyone can visit to buy cryptocurrencies at a price set by the broker.
The exchanges can send cryptocurrency to a user’s personal cryptocurrency wallet. Digital currency exchangers might send funds directly to an investor’s virtual wallet or convert currencies to prepaid cards, which can be used to withdraw cash from automated teller machines (ATM). Some can convert digital currency balances into anonymous prepaid cards which can be used to withdraw funds from ATMs worldwide while other digital currencies are backed by real-world commodities such as gold.
The creators of digital currencies are often independent of the digital currency exchange that facilitate trading in the currency. Cryptocurrency exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currency like US dollars or Euro. In one type of system, digital currency providers (DCP) are businesses that keep and administer accounts for their customers, but generally do not issue digital currency to those customers directly. Customers buy or sell digital currency from digital currency exchanges, who transfer the digital currency into or out of the customer’s DCP account.