the cryptocurrency exchange, buyers and sellers are offered a platform for trading different assets with their estimated value based on current market prices.
Typically,
exchanges offer conventional fiat-to-crypto transactions and offer crypto-crypto exchanges. For example, on Coindirect with South African exchange, a customer can buy Bitcoin for US Dollars or can trade their Bitcoin for Ripple's XRP.
What are the types of exchanges?
There are three types of cryptocurrency exchanges:
Trading platforms: platforms that connect buyers and sellers.
Broker: platforms that sell cryptocurrencies at a price set by the broker. These act similarly to the service providers dealing with Forex.
Direct Trading: Platforms that offer peer-to-peer direct trading. This allows users to trade currencies around the world, and the seller and buyer are content with one price.
What are the requirements for cryptocurrency exchanges?
In order to exist and operate, a cryptocurrency exchange must comply with the laws of the country. These laws differ from country to country but generally follow customer protection regulations.
Two of these are important in most countries:
Anti-Money Laundering (AML) Laws Knowing Customer Laws (KYC).
There are AML laws to prevent illegal money-related activities from being considered legitimate. KYC laws ensure that a platform such as an exchange knows who they are dealing with; to protect existing customers, the company, and the integrity of a business transaction. This is a bit like having a credit score - where banks trust an individual because they have built credibility.
To regulate this, most exchanges require traders and users to link their account on the platform to their personal bank account. First, this helps create a place to send and receive fiat currency. Second, it helps verify a person's identity and credibility.
What is a decentralized cryptocurrency exchange?
There are two types of cryptocurrency exchanges: traditional exchanges and decentralized exchanges.
A decentralized exchange aims to operate without any central government figure. This means that the platform runs on a blockchain that does not contain any resources, information or data but allows transactions between users to take place. Using smart contracts, a decentralized exchange generates something called "proxy tokens" which represent an asset that offers the opportunity to trade among users.
What are the biggest cryptocurrency exchanges?
At the time of writing, the largest cryptocurrency exchanges in terms of market capitalization according to CoinMarketCap are as follows:
LBank
Binance
Bit-Z
BW
OKEx
The cryptocurrency exchanges with most of the markets offered by the platform according to CoinMarketCap are as follows:
HitBTC
YoBit
Binance
Huobi Global
KuCoin
What is a custodian service?
Custody issues arise in connection with a cryptocurrency exchange. This refers to the storage that a platform has of a customer's information, such as their private keys or transaction history, by means of a balance sheet instead of through the blockchain.
A custody service allows a merchant to have a quick and cheap service but at the cost of transparency.
What is a non-custodial service?
Conversely, a non-custodial service can be offered by a trading platform that does not require users to create an account on their platform. It also doesn't hold a trader's cryptocurrency on a balance sheet. This means that there is an extra layer of security beyond anonymity. These services allow transactions to take place automatically.
If you were to create a checklist when choosing an exchange, there are several aspects to consider:
Credibility: The exchange should be able to show that it is trustworthy
Fees and Payment: All exchanges have different fees and you need to make sure you know what you are signing up for in terms of fees. Also, make sure you know what payment methods the exchange offers. It could be methods like a local bank, credit card, or Paypal.
Restrictions and Regulations: Some countries are cryptocurrency-friendly while others are not. Before choosing an exchange, make sure it is compliant with your country's government.
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