What is Cryptocurrency Exchange and how does it Work?

When in 2008 the first cryptocurrency, Bitcoin, was released, it was almost a revolutionary event. Till that day people saw money as fiat money and nothing else. Thanks to Bitcoin, we now have thousands of crypto coins to buy, invest in, and use as means of buying products and services we had no access to.

The only way of getting crypto coins back then was to mine them. Considering the cost of buying and maintaining expensive mining equipment, people came up with the idea of selling coins. But how to do it safely? By using crypto exchanges! Today, you not only can exchange, for example, dollars to bitcoin but also bitcoin to ethereum, litecoin, etc.

But how does the crypto exchange work? Check out the article to learn more about this exciting way of obtaining the needed type of digital money.

What is Crypto Exchange?

The simplest definition of a crypto exchange describes it as a platform matching sellers with buyers. For example, if you wish to exchange dollars into USDT, you can use the platform to find a seller. But you may choose from different types of platforms to exchange one currency for another.

Normally, there are 2 types of exchange platforms:

  1. centralized exchanges;
  2. decentralized exchanges.

In the first case, it’s a lot easier since these types of exchanges work 24/7. Most of the time you don’t have to wait to get the needed currency since it’s always in stock. Such platforms usually require an additional small fee, but it’s extremely convenient.

The second type of platform barely asks for any fees since it’s mostly p2p. The thing is that you might not find the required currency. Moreover, such exchanges usually have active times rather than 24/7 exchanges.

How does Crypto Exchange Work?

The basic idea is to match a buyer with a seller. In the case of a centralized exchange, the seller is the platform. If the exchange is decentralized and used by multiple sellers and buyers, you will be matched with a person selling the needed currency.

To use a platform, you need an account. To start using any exchange, users need to verify their IDs. The verification may take a while depending on the platform. Upon completing the verification, users can exchange fiat money for crypto coins, one type of cryptocurrency to another, etc.

As for the prices on various crypto coins, no exchange sets a fixed one. The overall situation depends on the market. Sometimes prices get higher, sometimes lower. That’s how exchanges work!