The advent of the internet has given rise to related technologies that are helping consumers in ways almost unprecedented. Blockchain is a worthy development that has redefined general peer-to-peer transactions. Cryptocurrencies are one such application that leverages blockchain and is providing ways to build wealth while also fostering a cash-free economy.
Cryptocurrencies or digital coins need a repository from where consumers can buy, trade, or sell. Such storehouse forms the basis of crypto exchanges. A crypto exchange is almost similar to any forex where users can buy fiat currencies of their choice. Crypto exchanges differ from similar such entities by generally providing wallet service, analytics, and trading service.
Your quest to buy crypto may lead you into many uncharted waters. However, often, you would find arriving at the doors of crypto exchanges. These bodies are the fountainhead and a gateway to virtual currencies! With so much introductory insight given to the crypto framework, there are some salient features you would want to appreciate. This discussion is an endeavor to help you master the elements and empower to explore more.
COMMON FEATURES ASSOCIATED WITH A CRYPTO EXCHANGE
There are some fundamental features all crypto exchanges offer, and there are features which sets an exchange apart. The most complex infrastructure that exchanges have to bear is the support for crypto-wallets. A crypto wallet is a treasury for user’s funds. The wallet can support fiat currencies as well as digital coins, but generally, it is the latter.
Wallets can either be hot or cold based on how they operate. A hot wallet is always connected to the internet and provides quick access, easy trading, or redemption. However, hot wallets are prone to compromises since malicious actors could trace their availability. Cold wallets, on the other hand, are at the full discretion of the user, coming online only when mandated.
You can visit any crypto exchange supported in your geography and begin transactions. The steps involved are usually self-explanatory, and anyone with a basic knowledge of computers can scale up. If you are conversant and still find it hard to continue, the exchange infrastructure could be faulty! Some popular crypto exchanges are Binance and Kraken, but the list goes on.
With the arrival of mobile technology, crypto exchanges are not left far behind to dawn their presence on this platform. In fact, if an exchange does not have a mobile presence, such entities are labeled dull and lack of innovation. Mobile devices are the cornerstone of crypto wallets and wallets are building rank embedding exchanges for versatile usability.
TYPES OF CRYPTO EXCHANGES AND MODE OF FUNCTION
Decentralized technologies generally imply the lack of a mediator. On the same lines, exchanges are classified into centralized exchanges (CEX) and decentralized exchanges (DEX). The names are rather explanatory conveying the presence or lack of a moderator to handle trading or other activities.
While CEX is ruling the market due to wider proliferation, easier development and manageability, DEX is the next big thing in this space. DEX facilitates two or more parties to work face-to-face, setting own trading fees, and speeding up the formalities. DEX, however, has inherent shortcomings being vulnerable to fraud or hacking.
Another basis for classification of exchanges is their ability to source virtual currencies. While all exchanges may not allow you to buy crypto, they may only allow you to trade. In this context, exchanges are labeled as broker exchanges and trading exchanges. Broker exchanges generally house reputed coins like Bitcoin (BTC) and Ethereum (ETH). You can exchange other coins like stable ones with your Bitcoin, for example.
THE SCALE OF TRANSACTION AND COUNTRY FOCUS OF EXCHANGES
With the prices of digital coins fluctuating widely and the enthusiasm shown by consumers to own them, it is only evident that exchanges garner a lot of traffic. Exchanges define their scale using a term called daily trading volume. An exchange like Binance, this figure reaches almost billions of dollars. Crypto exchanges are often quoted to overtake a lot of large banks.
With nations differing on their take towards cryptocurrencies, exchanges had often been victims to bear the brunt of a shutdown. In India, for instance, two popular exchanges well connected with the masses had to call it off, after regulations impeded their course of work. These exchanges were bearing transaction costs and providing a gateway, but in the end, yielded.
SECURITY ASPECTS OF CRYPTO EXCHANGES
Security at exchanges presents paramount importance to stakeholders. Both the administrators and consumers are equally conscious of security. The consumers, however, are much more anxious about their funds even though they are comforted by the availability of insurance. The administrators are worried about the loss of reputation if their exchange falls prey to attacks.
Security is an aspect that forms a core area of study for many reputed crypto exchanges. Such firms invest millions of dollars for novel measures and the latest security patches. While features like two-factor authentication (2FA) may sound basic, the lack of this facility almost shakes the foundation of an exchange.
Security of an exchange covers many aspects. The wallets have to be kept safe; the logins have to secure, website immune to repeat attacks, and trading has to be seamless. Hackers have evolved to be smart to breach trading sessions and siphon funds into their wallets. Generally, common virus attacks for repeat threat have been eliminated.
The most publicized malicious attack on an exchange was that of Mt.Gox. Bitcoin worth millions were stolen and the exchange almost rendered to the brink of insolvency. There have been several such incidents since this mishap, all providing major blows. The compromises on exchanges have spawned rigorous insurance programs.
Crypto exchanges are here to stay and soon would mesmerize the masses. Whether you are a beginner or an advanced trader, you will be reaching out on your preferred exchange. When cryptocurrencies become the norm, mobile exchanges are expected to dominate. Build an active awareness about exchanges and your engagement with cryptocurrencies would be a pleasant one.