Online Currency: How Does Crypto Exchanges Work?
With its rising popularity, you are probably wondering what a crypto exchange is. Before finding out the answer to what a crypto exchange is, however, it is important to first define cryptocurrency. A cryptocurrency is a new kind of money that exists only in digital form. In connection, a crypto exchange is a type of marketplace where you can trade digital assets (which is another way to describe cryptocurrency).
If you intend to trade in cryptocurrency, you will need to know how a crypto exchange works.
Crypto Exchange Facilitates Online Trade
The value of cryptocurrency is dependent on how people perceive the market value of each type of cryptocurrency. Some types of cryptocurrency are actually considered more valuable than others. There is no one sure-fire way to determine if a cryptocurrency is more valuable than another aside from the price the currency is trading for on the crypto exchange. For this reason, it is important to deal with cryptocurrencies only on a trusted crypto exchange.
Needless to say, the crypto exchange you will be dealing with has to be trustworthy because it will be handling your digital assets. This reason is why it has value for you and to the people who are trading with cryptocurrency on that exchange. The two most popular crypto exchanges right now are called GDax and Binance. You can also find a list of the best crypto exchanges here. They are popular because others have been able to reliably trade on these exchanges with positive results.
Trading Fiat Currencies With Cryptocurrencies on a Crypto Exchange
Many people who have delved into the cryptocurrency field like the idea of trading fiat currencies with cryptocurrencies on their preferred (and trusted) crypto exchange. A fiat currency is basically the currency that most people are familiar with such as US dollar bills and penny coins which you can grasp with your hands and are tangible. Cryptocurrencies only exist in digital form and thus can only be dealt with as digital data on a computer.
One reason people like to deal with the “fiat currency – digital currency” pairing in online trade is that they want to capitalize on the perceived increase in the value of cryptocurrency so that it gets converted into fiat currency – then they can use this valuable money to do regular transactions like buying and selling of goods and services.
That being said, a crypto exchange has to be trustworthy so that the value of the cryptocurrency in terms of the value of fiat currency does not get diminished. You trade on the crypto exchange through your computer which has to be a fast kind of computer to be able to accommodate the rapid transactions. Trading can be anonymous on a crypto exchange – that is why some people get attracted to this kind of trading.
Cryptocurrency to Cryptocurrency Pairing on Crypto Exchange
Though many people like trading in “fiat currency – cryptocurrency” exchanges, there are also crypto exchanges that do not permit fiat currencies to be used. In this case, you would have to exchange your cryptocurrency for another type of cryptocurrency to be allowed on the crypto exchange. Though you won’t be receiving fiat currencies in exchange for your cryptocurrency, you will be getting valuable cryptocurrency anyway.
The most valuable cryptocurrency right now are Ethereum and the original cryptocurrency Bitcoin. If you enter the crypto exchange intending to buy and sell in these two you might find their prices to be on the rather steep side since they are so in-demand right now. So you may look for other cryptocurrencies that seem to be less popular or less valuable and trade in those. The trading on a crypto exchange goes really fast so you need to be on your toes if you want to delve into this kind of trading.
Winning Value on a Crypto Exchange
You will notice that these trades are facilitated by the crypto exchange, in return for fees paid by the trader. This is why it is very lucrative to run a crypto exchange right now, despite perceived difficulties. You might also notice similarities between a crypto exchange and a stock market exchange such as the rise and fall of the value of the asset due to market demand. And it may be simpler to call a cryptocurrency a “digital asset” so that you can see how their market value will rise and fall with the sentiment of the market.
How An Aggregation Website Works
You may encounter an aggregation platform like CoinSwitch when you are searching for an exchange to do trades in. CoinSwitch is formally known as a “cryptocurrency exchange aggregator site” and serves as a gateway for a lot of the existing cryptocurrency exchanges. What this means in layman’s terms is that CoinSwitch will allow website owners to direct their website so that it becomes a cryptocurrency exchange too. And since CoinSwitch is associated with trusted crypto exchanges, then it follows that it can be trusted too.
A crypto exchange can only function if the market (meaning the people who actively trade on the crypto exchange itself) trust it. If you want to delve into cryptocurrency trading, you will need to find a trustworthy crypto exchange first. That way, your hard-earned money will go towards trades that will bring financial value to you and you can proceed to trade more in the coming days.