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Online Currency: How Does Crypto Exchanges Work?

Due to the growing popularity of online currency, sometimes referred to as a cryptocurrency, crypto exchanges are now also being thrust into the limelight. Not surprisingly, many people would like to know more about cryptocurrency and how ordinary people can profit from crypto exchanges.

So what exactly is a cryptocurrency, first of all? And why do you need to go to a crypto exchange just to trade in it?

Definition of Cryptocurrency

Cryptocurrency is actually a type of software that functions like the money you are using right now to buy from stores with (such as dollar bills and pennies) – but it is different from regular money in that cryptocurrency only exists within the digital world. You cannot grasp it with your hands because it is intangible but people consider cryptocurrency to be valuable because there are other people they can “barter” their cryptocurrency with and reap big profits.

Definition of Crypto Exchange

Since cryptocurrency can be exchanged this way, crypto exchanges were born. A crypto exchange functions very similarly to stock exchanges in that a stock exchange can serve as the “trading floor” for shares to be traded or exchanged between different people. In the same way, you may go to a crypto exchange online and trade your cryptocurrency with another person’s cryptocurrency or fiat currency to make a profit. A crypto exchange charges a fee for its role as a “middleman” where trades are hosted.

Crypto Exchange Hosts Online Trade

You may be wondering why cryptocurrencies are so valuable. The truth is, the value of cryptocurrencies depends on who owns it at the time and who would like to own it in the future. 

For example, if Trader A has cryptocurrency valued at 100 US dollars and then goes to a crypto exchange to sell it, that is when Trader B comes up to the crypto exchange to buy the cryptocurrency from Trader A. Since the cryptocurrency was originally valued at 100 US dollars, Trader A may add a profit margin so that the selling price creeps up to 150 US dollars. Since Trader B really wants to own the cryptocurrency he agrees to pay 150 US dollars to Trader A. As you can see, this kind of exchange hinges on just how much Trader B wants to own the cryptocurrency of Trader A. That is basically how a cryptocurrency becomes valuable.

Of course, that is the simplest kind of trade, called a “cryptocurrency-to-fiat” exchange. (Fiat refers to the regular kind of currency you are used to handling, such as US dollar bills and coins). Many people deal in this “digital currency – fiat currency” kind of trade because they profit in real money which can be used to pay for goods and services in the real world. And cryptocurrencies are generally valued in terms of regular money actually – so when you read up about major transactions the transactions can be described as “Trader A sold $1 billion worth of cryptocurrencies to Trader B”. It’s just easier to determine the financial value that way.

Are Crypto Exchanges Safe Places For Financial Transactions?

The issue of safety often comes up when crypto exchanges are the topic of conversation. The truth is, the cryptocurrency world is still a new frontier as far as regulating it is concerned. Since the cryptocurrency is still in digital form, it is so easy to trade it and transactions can be very, very fast. Often, traders who are buying do not know the traders who are selling (and vice versa). This anonymity has alarmed government regulators because it is easy to do money laundering this way. But as of this moment, central banks are not delving yet into crypto trades, and crypto exchanges are not yet regulated by the US government or any other government for that matter. (This may change as more and more people get into cryptocurrency trades, making government oversight a necessity).

So, if you are trying to find a preferred (and trusted) crypto exchange to do business in, you often have to rely on word of mouth advice. This makes it less risky for you since your contacts may have been able to trade at a particular crypto exchange without a hitch. You may also read up on which crypto exchanges are trustworthy through news reports and Public Relations announcements to find that perfect crypto exchange that will be handling your digital assets. 

GDax and Binance are popular crypto exchanges right now. You can also find a list of the best crypto exchanges here.

If you would like to try trading, you may look for valuable cryptocurrencies on different crypto exchanges. One example of a very valuable cryptocurrency is Bitcoin – this was the very first kind of cryptocurrency ever created and it’s still one of the most well known. It is valuable since many people have heard about it by now so the pioneer traders who were able to accumulate Bitcoin in its infancy can command their preferred price nowadays. Another example of a valuable cryptocurrency is Ethereum. There are many other cryptocurrencies currently being traded too.

Importance of Aggregation Websites

As you search for the right crypto exchange, you might come across an aggregation platform like CoinSwitch. CoinSwitch is an example of a ‘cryptocurrency exchange aggregator site” (as it is more formally described). These sites permit website owners to legally make their site into a crypto exchange affiliated with specific cryptocurrencies. 

Conclusion

Searching for the right cryptocurrency to trade in will often turn up information about crypto exchanges too. You may do your own research about which crypto exchange to trust with your cryptocurrencies, or you can read up about different currencies and start making inquiries about crypto exchanges affiliated with them. This benefits you in the long run because you will gain an insider’s perspective about cryptocurrency trades. Who knows? Maybe one day you’ll set up your own crypto exchange as well after you’ve mastered the process of cryptocurrency trading first.

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