A lot is in the news about decentralized digital currency Bitcoin. The concept was introduced in 2009, and since then, there has been no looking back for Bitcoin and Blockchain. Bitcoin offers the advantages of lower transaction fees than the traditional online payment methods do. Unlike the currencies issued by the government, it is decentralized, and its key feature of cryptography makes it highly secure. The Bitcoin has no physical presence, and the balances are only kept on a public ledger that all can have transparent access to. A strong computing power usually verifies all the transactions of Bitcoin through the method known as “mining.” Bitcoin is not backed or issued by any government or financial organization, and thus, it is not a legal tender. Still, Bitcoin’s popularity has become the reason for creating different other cryptocurrencies, also known as altcoins collectively.
So, if you want to know clearly about the role of Bitcoin while exchanging, here is the required information for you.
What is a Bitcoin exchange?
The term Bitcoin exchange is referred to a marketplace that is digital and where the traders can both purchase and sell Bitcoins by using different fiat currencies or altcoins. A Bitcoin exchange works the same as trading platform, where the investors can buy Bitcoin. The currency used to describe Bitcoin is either XBT or BTC.
Several important factors regarding Bitcoin exchange
- The Bitcoin exchange system may act similar to a brokerage, so you can easily deposit the money via wire, bank transfer, and several other common deposit methods. However, you have to pay a specific price for this service.
- The sales and purchases usually depend on the ordering system that is the same as the existing brokerages, where a taker or purchaser places a limited order after that sold when a specific kind of cryptocurrency is actually available from the maker or usually known as a seller.
- When traders wish to trade between cryptocurrencies, they need to pay a conversion fee, similar to the banks or other financial institutions when they trade money from various countries.
Understanding the role of Bitcoin exchanges
The platform of Bitcoin exchange matches the buyers and the sellers. The functioning of the Bitcoin exchange is almost the same as any traditional stock exchange. You can buy and sell stock and earn a profit. When a specific market order is selected, the trader gives his authorization for the exchange to trade the currencies for the best price available in the market. With a set of limited orders, the trader can easily direct the exchange process to properly trade the coins for a price that is usually above the existing bid or lower than the current ask, depending on whether they are buying or selling.
To do the transaction process in Bitcoin, the user needs to register with the Bitcoin exchange and undergo a special verification process to establish the authenticity of their identity. After this process is done successfully, a special account is usually opened for the user, and they can transfer some of their funds into that new account before purchasing coins.
Different types of exchanges usually have different methods of depositing funds like bank transfers directly, bank wires, debit or credit cards, gift cards, money orders, etc. If any trader wishes to withdraw some money from their account, they can easily select any one of the special methods supported by the exchange. Some can be cash delivery, mailing the check, PayPal transfer, bank wire, or transferring through credit card.
The decentralized exchanges
These offer peer-to-peer exchanges of those digital currencies without any influence of a specific exchange authority to monitor the transactions. These decentralized exchanges have several benefits like:
- The users can transfer their assets directly to others.
- Most cryptocurrency users may think that these decentralized exchanges match most digital currencies far better.
- This reduces the scope of fraud to a great extent.
- The decentralized exchanges are usually not disturbed by the problem of the manipulation of price and other problematic activities.
All the bitcoin exchanges need a transaction fee for each complete order of buying and selling the order within the exchange. For this reason, how to choose the best bitcoin wallet its best to offer its customers several exceptional ways to trade Bitcoins in a hassle-free way.
The proper understanding of Bitcoin exchange is really important if you want to trade successfully with Bitcoin’s help. Keeping a tab on the market trend and the performance of a cryptocurrency will help you earn more profit.