Importance of Bitcoin exchange


Importance of Bitcoin exchange: A bitcoin exchange is a place where the bitcoin traders buy and sell bitcoins with a great profit. A bitcoin exchange operates online and acts as a mediator between bitcoin buyers and bitcoin sellers. A bitcoin exchange is like an online brokerage, where the buyers and sellers deposit money utilizing a debit card, credit card, wired banks, and lots more. As a trader, if you wish to trade with cryptocurrencies, you need to pay conversion fees as you do with a traditional currency system for different countries. This article discusses bitcoin exchanges in the following sections.

Overview of Bitcoin exchange

A bitcoin exchange functions the same way as traditional stock exchanges. A bitcoin trader can either choose to buy or sell bitcoins by fixing the market order or limit order to the exchanges. The trader can either sell bitcoins above the limit order or buy bitcoins below the limit order with the exchange. This show that a bitcoin exchange’s role is to increase the returns and make the trading profitable.

To trade bitcoins through an exchange, the traders must first register with a particular exchange. After various verification cycles, the trader will be opened an account in the exchange. As a first move, the trader has to deposit some money before buying bitcoins. The amount can be deposited utilizing bank transfer, credit card, PayPal, and lots more.

Bitcoin exchange types

There are two types of bitcoin exchanges. They are:

  1. Centralized exchanges
  2. Decentralized exchanges
  3. Centralized exchanges

In this type of exchange, the traders’ investment will be controlled by a central authority, where the traders are not allowed to process the transactions on their own, as in the case of blockchain technology. So, even a small security issue or crash in the system will make the traders lose entire bitcoins as they are centralized. Coinbase, Binance, Bitfinex are centralized bitcoin exchanges. But, Binance, in the future, will become decentralized very soon.

  1. Decentralized exchanges

As the name indicates, these exchanges follow the blockchain technology pattern, where several nodes are connected to the network. As a result, if a crash happens in one node, other nodes can still function. Radar Relay, Openledger, Stellar DEX are some of the decentralized exchanges.

But when compared to centralized exchanges, decentralized exchanges have lower liquidity as traders are mostly opting for centralized exchanges, and as a result, decentralized exchange’s fair market value is low.

Guide to choosing a bitcoin exchange

The main reason for more price value fluctuation in cryptocurrencies is they are traded 24 * 7, whereas the traditional stock markets are traded with time restrictions. To make big returns with bitcoins trading, the traders must be careful in choosing bitcoin exchanges, who are the backbone used for investing and trading bitcoins. Also, as bitcoins are virtual, there are more chances that you may lose your bitcoins, which can be avoided by choosing proper bitcoin exchange. The following article discusses a few factors to look upon before registering with a bitcoin exchange.

  1. Security: As online platforms are vulnerable to security attacks, the trader must ensure whether an exchange offers security measures like password strength, captcha, and 2-step verification process and anti-phishing code aspects.
  2. Trading volume records: For ease of choosing an exchange by institutional-grade investors and venture capitalists, data on trading volumes must be maintained so that the investors will be able to check whether the exchange is meeting up their investment needs.
  3. Transparency: An exchange must be transparent so that the traders can make a choice easily.
  4. Location: This is the most important factor to look at before choosing an exchange. If an exchange does not have location details or if the exchange operates in a location where bitcoins are banned, the site may be fake and alert before losing your money.
  5. Fee: If an exchange does the transaction at a higher rate, then they are very secure. But some exchanges may impose a high amount for this type of protection. In a crypto industry, most exchanges operate without a cash system, and some traders might not even have digital tokens. So, choose an exchange that operates in a cash system also. For more details, visit Q Profit System

Thus this article has discussed the importance of bitcoin exchange and factors to look upon before choosing an exchange.

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