What is a cryptocurrency exchange?

April 20, 2021

A cryptocurrency exchange is an online platform that serves as a marketplace for traders to buy and sell cryptocurrency. When it comes to a crypto exchange, it is often thought of as confusing and many questions go unanswered. How does it work? Can it be converted to cash? What does it mean for an exchange to be centralised or decentralised? But a crypto exchange doesn’t have to be confusing! All of these questions will be answered below.

How does a cryptocurrency exchange work?

Essentially, like the stock exchange, or buying on an auction website like Gumtree, cryptocurrency traders create an online profile/account on an exchange platform and are then able to buy and sell directly with other traders. There are different options to choose from when buying, a trader can make a bid for a coin or currency from a trader or they buy the amount that their money is valued at straight out.

Can cryptocurrency be converted to cash?

The way cryptocurrency can be converted to cash is through a cryptocurrency exchange. A trader essentially sells their currency for cash in the bank. The way that this works is the same as it works for a trader to purchase the currency – through bank transfers, credit/debit card payments, checks, cash handover or even through apps such as PayPal.

What are centralised and decentralised exchanges?

Centralised and decentralised exchanges are all based on the presence of a middle-man/platform. Essentially acting as a bank, networking agent and security officer, the middle man would connect traders to one another, hold all cryptocurrency assets for the traders all while safeguarding the currency and ensuring that the money is safe and the sales are trusted. This is a centralised exchange.

Much less common is a decentralised exchange. This is an exchange that exists without the middleman. This means that there is no trusted intermediary to ensure the safety of the trade but cuts down the cost of the platform and transaction fees. Although this might sound riskier, there are benefits such as less information given to the exchange platform and lower risk of hacking or theft while the currency is safeguarded on the platform.

So, what are the exchange platforms?

There are many exchange platforms out there, and choosing one can be daunting. For the crypto-beginner, eToro is your best bet. Binance and Coinbase offer great platforms for those intermediate and pro-crypto-traders of altcoins. And for those looking to forgo the middleman and take the exchange personally, Bisq is the way to go.