What is the Role of Cryptocurrency Exchanges?

With cryptos becoming an integral part of our lives it becomes important to understand the role cryptoexchanges play. Cryptoexchanges are trade platforms facilitating buying and selling of crypto assets in exchange for other cryptos or fiat currencies. So, a cryptoexchange acts like a middleman between the buyer and seller, making money through transaction and commission fees. Alternatively, you might have an automated trading bot trade on your behalf. Bitcoin Profit is a trading bot that performs trades without the need for human participation, lowering the chance of loss. To begin trading, you’ll need to make a few setting to your account. Customers at Bitcoin Profit can also use the demo functions. Read the Bitcoin Profit software test reviews to be clear about the legitimacy of the software before you start live trading.

Why are cryptocurrency exchanges needed?

The main purpose of having cryptoexchanges is for liquidity. Everyone makes an investment with an end goal to acquire maximum returns on it. So, for those who are trading cryptos as a profession, it is wise to sign up on a cryptocurrency exchange which focuses on a thorough KYC process and top-of-the-line security measures.

Exchanges can be centralized and decentralized; the centralized exchange is one which is an intermediary between two parties and controlled by a company, making it more secure and reliable. You will find that nearly 99% of transactions in crypto happen through such exchanges. Some popular centralized exchanges are Kraken, Gemini, and Coinbase. Decentralized exchanges, on the other hand, let users conduct peer-to-peer transactions where no third party is needed. But these do not allow fiat currencies to be traded for cryptos; examples are Blocknet and AirSwap. Decentralized exchanges are believed to generate “trustless” environments where transactions happen through smart contracts.

Cryptocurrency exchanges play a key role in cryptocurrency growth because these are places where people will trade cryptos for fiat and other cryptos. Exchanges will charge fees for every transaction because they connect buyers with sellers. Exchanges will also receive fiat currencies and help in converting these to crypto coins. They aim to get the highest liquidity with lowest spreads for which they require an active order book. This explains why people tend to gravitate towards only a handful of core cryptoexchanges.

There are significant delays when money must be moved into or out of a cryptoexchange; this is why traders should ideally keep some funds on it. But this adds to the risk of exchange users. Exchanges have been susceptible to frequent cyber threats and hacks which have led to funds being stolen.

These arguments show why a cryptocurrency exchange is important, but at the same time, users have numerous complaints regarding their functioning. The most important issues concerning exchanges are:

  • Fees: Exchanges charge fees for every transaction and these vary depending on the type of exchange.
  • Payment: While some exchanges offer only a handful of payment options that automatically deter traders from signing up on them, others offer many options. Buying cryptos with credit cards demands ID verification and is costlier because of risks of frauds and higher processing fees.
  • Verification: This may be tedious and time-consuming but majority of exchanges in the UK and US demand it for withdrawals and deposits.
  • Geographical limitations: Few exchanges can be only accessed from specific countries.

Before choosing an exchange, you need to make sure it is accessible. Some nations like China have prohibited cryptos while a lot of uncertainty regarding regulations exists in the US. You must also make sure that the exchange conforms to strict security norms since cryptos are not backed or supervised by centralized institutions like banks. You can find insurance policies offered by a few exchanges for protecting your holdings from frauds and thefts.