what is a crypto exchange? could trade and exchange Bitcoin and the digital currencies that were introduced after that. After that, many digital currencies were introduced and it was necessary to have a platform where users could easily buy and sell crypto these assets.
This need caused the emergence and expansion of exchanges. These days there are hundreds of exchanges with different working methods. In the following, we will examine what a digital currency exchange is and what types and features it has.
what is a crypto exchange?
A cryptocurrency exchange is a platform or marketplace where individuals can buy, sell, and trade cryptocurrencies. These exchanges allow users to convert digital assets into other assets, including traditional fiat currencies like USD, EUR, etc., or other cryptocurrencies like Bitcoin, Ethereum, and more.
How did the cryptocurrency exchange come about?
Bitcoin was introduced in 2009 and its first exchange was conducted in January of this year as a test between Satoshi Nakamoto, the creator of Bitcoin, and Hal Finney, one of the crypto developers. After this date until reaching the first digital currency exchange, the following happened:
In October 2009, each dollar was equal to about 1,309 bitcoins. From this date, the price of Bitcoin began to fluctuate and the ground was created for the creation of exchanges in order to buy and sell Bitcoin. At this time, the first Bitcoin buying and selling service called New Liberty Standard was created. In this way.
for the first time, traders realized what a digital currency exchange is. In this platform, the value of Bitcoin was determined based on its mining cost to compensate for the mining costs. The first transaction was recorded on October 12, 2009 through PayPal.
A year later, in February 2010, a Bitcointalk user named dwdollar created a portal called Bitcoin Market, which provided the possibility of buying and selling Bitcoin person-to-person through payment systems such as PayPal. In this way, the value of Bitcoin increased a little. On June 4, 2011, PayPal stopped supporting Bitcoin due to fraud committed by one of its users.
Bitcoin exchange platform
In July 2010, the first official exchange on Bitcointalk called Mt. Gox was reported by Jed McCalbe where the latest exchange price was determined, showing the highest and lowest prices and the volume of Bitcoin transactions in the last 24 hours.
This platform was one of the most important platforms for buying and selling Bitcoin, where 70% of the purchases and sales were made. The exchange was hacked on June 19, 2011 and thousands of bitcoins were stolen.
Types of digital currency exchanges
All cryptocurrency exchanges are responsible for connecting buyers to sellers, but each one does so in a different way. From a detailed point of view, crypto exchanges are divided into three general categories: centralized, decentralized and hybrid.
Users can start trading crypto by importing fiat money or by connecting their cryptocurrency wallet to them. We will check their details below.
Centralized Cryptocurrency Exchanges
If you ask most people what is a digital currency exchange, you will see that most of them know a centralized cryptocurrency exchange as a cryptocurrency exchange. These exchanges are called CEX for short and they function like traditional stock markets.
The buyer and seller enter this platform and the exchange acts as an intermediary between them. The most important issue in centralized exchanges is their vulnerability to hacking.
Users deposit their money in the exchange and the exchange keeps this money. They place an order to buy a crypto and the exchange finds a buyer or seller who agrees with that price and connects them. The transaction is done. This process can be done by trading two digital currencies instead of fiat money.
But what are the characteristics of this type of digital currency exchange? These exchanges have a good user interface and are easy to work with. They have high trading volume and liquidity. Some trading platforms such as XCOEX even do liquidity pooling. In this way, they collect buy and sell orders from different sources and provide traders with prices close to the market average.
They usually have better support services and support more cryptos. Also, sometimes DeFi services (decentralized financial matters such as lending and depositing on the blockchain platform) or other services such as the opportunity to earn money through cryptocurrency such as participating in initial offerings are provided to the user.
On the other hand, CEX users do not own their private keys. Therefore, their assets may be hacked. Also, some people are unhappy that they have to provide their personal information during the membership and authentication process to these platforms.
read about How to Buy Bitcoin in The United Arab Emirates,
How centralized exchanges work
A centralized digital currency exchange is a platform where traders trade digital currencies for fiat money or another digital currency. Buy or sell orders are registered in the order book. The exchange is an intermediary and does the job of matching buy and sell orders together so that the transaction is done. In return for this work, he receives a small fee.
There are different types of orders. The two most used types are limit orders and market orders. When the user places a market order, the exchange registers the transaction with the best market price in the order book. In this case, the user only determines how much crypto he wants to buy, and the price is determined by the exchange, based on the current rate and the prices offered by the sellers. Usually these orders are done quickly.
But when placing a limit order, the user determines the amount of digital currency he wants to buy or sell and its price. If there are other traders who accept this user’s price at the same time, this order will be displayed in the list and executed. Therefore, if there is no buyer or seller for this price, the order will not be made.
Decentralized Cryptocurrency Exchanges
Decentralized exchanges or DEXs aim to preserve the decentralized nature of the cryptocurrency market. These exchanges do not play an intermediary role and do not keep the user’s assets. Buyers and sellers gather on these platforms and transact directly and peer-to-peer.
Decentralized cryptocurrency exchange is more secure. But one’s capital may be blocked. Also, they have less liquidity than centralized exchanges and it may be difficult to place large orders in them.
Because Ethereum is the largest blockchain with the most tokens, most DEXs are set up on Ethereum and sometimes don’t even support Bitcoin. Crypto trading in them is associated with low volume of liquidity, low speed and poor user interface. Some of them do not have customer support services and do not use fiat money.
Many traders do not know what this type of digital currency exchange is and how it works, while it can be a good choice for many of them. UniSwap, PancakeSwap, IDEX and Bisq DEX are well-known decentralized exchanges.
How decentralized exchanges work
A decentralized exchange is not an intermediary between traders, but allows them to trade directly and peer-to-peer. What is the most important feature of this type of digital currency exchange? These exchanges work using smart contracts that are automatically executed and their terms are subject to the agreement of traders.
When a user wants to trade on a decentralized exchange, he registers an order and publishes it on the network. This order is then matched with the order of another user who is looking for the same conditions. Smart contracts execute the transaction automatically and the balance of the two users is updated. .
Hybrid exchanges
These exchanges, which are called HEX for short, are the latest generation of crypto exchanges that want to combine the advantages of the previous two. Their goal is to provide the liquidity of CEXs with the level of security and privacy of DEXs.
The first hybrid exchange was Qurrex, launched in 2018. The founders of this exchange had a long experience in the forex, stock market and futures market and decided to offer a new generation of crypto exchanges.
Digital currency exchange selection criteria
In the following, we will examine what are the most important criteria for choosing a digital currency exchange and what things we should keep in mind:
List of offered assets:
Most exchanges offer major digital currencies such as Bitcoin, Ethereum, Binance, ETC. However, if you are thinking of trading other altcoins, you should check the list of cryptos that a cryptocurrency exchange offers for trading. For example, the list of Kiosk exchange assets and their prices are fully listed on the website.
Fee:
The amount of fee is very important especially for traders who are thinking of making profit from fluctuations and want to do a lot of buying and selling. Therefore, it is necessary to check the fee before joining and starting work. In addition to transaction fees and withdrawal fees, some exchanges have other fees that must be checked.
Security:
What is the most important feature of digital currency exchange? security Because digital currency exchanges are a good prey for hackers. Choosing a safe exchange is very important, especially for those who want to deposit a lot of capital into the exchange account. It is important to perform two-step password, authentication and Know Your Customer (KYC) process.
Support:
Reputable exchanges have 24-hour phone and online support and respond to the user as soon as possible.
Number of users and amount of liquidity: The more the number of users of an exchange, the higher the amount of liquidity and orders are made faster. This issue is especially important for traders who want to have high volume orders and the least price change is important to them.
Mobile features:
Some exchanges can only be used through a browser. This makes it difficult to access them. Due to the dynamic nature of the crypto market, where prices change instantaneously, access through Android and iOS mobile applications is very important.
How to be sure of the security of digital currency exchanges?
Sometimes choosing a good exchange seems to be a difficult task, however, by checking some factors such as the 9 items that we have listed below, we can be more confident about the safety of an exchange.
The desired invoice Description:
Cash volume and daily transactions This factor indicates the number of users of an exchange, and the more it is, the faster and easier it will be to buy and sell crypto in that exchange.
Deposit and withdrawal limits The minimum capital that the user must deposit in the exchange to start trading and the minimum amount that he can withdraw from his account in the exchange must be reasonable numbers, not very large numbers!
Wage Most exchanges charge up to 4.5% depending on the type of transaction and cryptos, but some of them do not charge their internal transactions under certain conditions.
you can also learn how exchange USDT to AED in How to Convert Tether (USDT) to Dirham (AED) in Dubai article.
Customer support Due to the rapid change of prices, the exchange must provide immediate support to its users 24 hours a day, 7 days a week.
transparency The terms, conditions, fees and operation of the exchange should be transparent and users should know what the exchange has done with their funds and how it takes care of them.
Comments from users and the developer team The opinions of the users of a project and the knowledge of its team members are very important. Follow the pages related to the project on social networks and make sure that their identity is real.
Property insurance review Insuring the property of users creates trust and guarantees capital against hacking, theft and money laundering.
Check the security measures of the exchange Investigating the hacking history of the exchange and the amount of lost capital, as well as its protection methods such as two-step authentication, multi-layer protection, facial recognition or biometric elements.
List of assets If the exchange lists unfamiliar cryptos or those that are not secure in terms of privacy and security more than others, it is a red flag.
How to trade in digital currency exchange?
What is the first step to trade in a digital currency exchange? This process starts with signing up on the digital currency online exchange platform. After you have done enough research and selected the exchange you want, enter its platform and go through the membership process.
Membership in some foreign exchanges is considered illegal for Iranians. If you have a Visa or MasterCard, you can become a member. Otherwise, you have to go through the membership process by bypassing the sanctions. However, if the Iranian identity of the user is revealed, he may lose all his property.
Digital currency trading in the exchange
In general, the membership process of exchanges, Iranian and foreign, is as follows: by entering your email and phone number, you enter the first level of access and you can do a limited amount of trade, but to import more assets and buy and sell in a higher volume.
you have to go Go through a higher level of authentication, which usually involves entering your address, landline, bank account information, and sometimes a few seconds of video of yourself. Some exchanges do this process from the very beginning.
After the membership process is over, the user enters his user profile and can place a purchase order by entering money from his bank account to the exchange account.
Frequently Asked Questions
What is a digital currency exchange?
A digital currency exchange is an online platform that connects buyers to sellers. Some exchanges are centralized and managed by private companies, and some are decentralized and managed by smart contracts. Some are also a combination of both.
What are the most important issues in choosing a digital currency exchange?
Security is the most important issue, but other things like liquidity and number of users, fees and support are also important.
What should we do to start trading in the exchange?
Just join the exchange platform and go through the authentication process. As soon as you enter your user profile, you can place a buy or sell order.
