Understanding the Concept of Bitcoin Exchange

Snapshot

• Defining Bitcoin Exchange
• How Trade is done at Bitcoin Exchange?
• Decentralized Exchanges

Defining Bitcoin Exchange

A Bitcoin exchange is an online marketplace where buying and selling of Bitcoins are done by traders, using different altcoins or fiat currencies. It acts as an intermediary between the sellers and buyers of the cryptocurrency. 

BTC or XBT is the currency ticker used for Bitcoins.

How Trade is done at Bitcoin Exchange?

Bitcoin exchange is similar to a traditional stock exchange, a platform to match sellers and buyers. A ‘market order’ or a ‘limit order’ is inputted by traders to buy and sell Bitcoins. In the case of a market order, the trader authorizes the exchange to trade coins for the best available price in the online market. In case of a limit order, the trader directs the exchange to trade coins above the current bid or below the current ask, depending upon the trader’s intention of either selling or buying. 

To trade coins on a Bitcoin exchange it is necessary that a trader has registered himself on that exchange and holds an account. To register oneself, a trader has to go through a series of authentication processes to authenticate his/her identity. After the authentication process, an account is opened, which the user can use to trade Bitcoins. A user will also be required to transfer funds in the account before he could buy any Bitcoins. 

Transferring funds into a Bitcoin exchange account can be different for different exchanges. Methods like bank transfers, gift cards, bank drafts, bank wires, money orders, and credit or debit cards can be used to deposit funds into an account. For withdrawal of funds, a trader is required to select from the options provided by the exchange. 

Decentralized Exchanges

Decentralized Exchanges are those which do not require a regulating authority. In these exchanges, traders are allowed direct peer-to-peer trading of digital currencies without any involvement of exchange authorities. 

In comparison to other exchanges Decentralized Exchanges offer their users various benefits – Decentralized Exchanges require less personal information from their users, in comparison to other types of exchanges. It facilitates direct communication and fund transfer between the traders, eliminating the need to first transfer the funds to the exchange, making users less vulnerable to frauds and other online threats. Lastly, users of Decentralized Exchanges are less prone to price manipulation and any fraudulent trading activity. 

It is felt by many users that Decentralized Exchanges are a far better match to the Decentralized structure of many cryptocurrencies in the digital market. 

For Decentralized Exchanges, they must be able to maintain a fundamental level of user interest, in the form of liquidity and trading volume, just like all other crypto exchanges. Also, in case of fraud, the users of Decentralized Exchanges will have fewer resources at their disposal in comparison to users of other exchanges.   

Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.

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