Crypto exchange is a term that is used to describe the process of buying and the selling of cryptocurrencies. The cryptocurrencies can be exchanged for other cryptocurrencies or fiat money. Also known as virtual currencies, these are essentially digital assets that are highly secured by means of cryptography.
Crypto exchange is a term that is often used in the relatively new world of cryptocurrencies. Basically, it can be likened to the currency exchange where in this case traders buy and sell cryptocurrencies. It is important to note that cryptocurrencies do not possess any inherent value but only presents value to its holder through its exchange.
Apart from using cryptocurrencies solely as a medium of exchange, they can also be traded on a global scale and used as an investment vehicle in the cryptocurrencies market which is known as a decentralized exchange.
How it works
A cryptocurrencies exchange is offered in the form of a platform where potential buyers are matched to merchants who are looking to sell their cryptocurrencies. Actual exchanges are performed when a buyer places a bid at a certain price which is filled when a seller offering the same selling price is found. Each cryptocurrencies exchange transaction attracts some transaction fees based on the volume of the transaction.
As an investor you can become part of the crypto exchange by signing up with an entity that offers the exchange platform, authenticating your identity and then transferring funds to your account. Depending on the methods offered, you can deposit money through wire transfers, credit/debit cards or mobile wallets. To avoid additional transaction fees, it is wise to choose an exchange that allows you buy the cryptocurrency using your local currency.
Advantages of crypto exchange
Cryptocurrencies (through the crypto exchange) are proving to be a valid vehicle through which investors can protect their money against devaluation which is happening to many currencies around the world. With lots of external factors such as insecurity, inflation, recession and even government interference, lots of people are choosing to hedge their money using cryptocurrencies.
Due to the decentralized nature of cryptocurrencies and the cryptocurrency exchanges, it is virtually impossible to manipulate the value of the cryptocurrency. Transactions that take place between a buyer and a seller are safe and there is little risk of fraud due to the fact that the transaction can only be completed if both parties consent to it.
Most cryptocurrencies are designed in such a way that their production diminishes with time. This means that like precious metals, their value is preserved and this is what ultimately makes them a reliable investment.
Disadvantages of crypto exchange
Due to the fact that crypto exchange is a fairly new phenomenon, lots of new entrants are attracted to introduce different cryptocurrencies to the market. While the concept of cryptocurrencies is futuristic, not every single version will be successful.
As such, there is the danger of ‘pumping and dumping’ by speculators where we see the value of a cryptocurrency appreciate exponentially then drop to near zero! Inexperience traders are often sucked into putting their hard-earned cash into cryptocurrencies when it is too late and therefore end up losing everything. So it is important to carry out due diligence on both the cryptocurrency and crypto exchange before investing.