Cryptocurrency Exchanges Explained
Cryptocurrency exchanges are online platforms where you can exchange one cryptocurrency for another cryptocurrency (or for fiat currency). In other words, depending on the exchange, it is either like a stock exchange or a currency exchange (at the airport or bank).
There are general there are the following types of exchanges:
- “Traditional” Cryptocurrency Exchanges: These are the exchanges that are like the traditional stock exchanges where buyers and sellers trade based on the current market price of cryptocurrencies (with the exchange playing the middle-man). These type of trading platforms generally take a fee from each transaction. Some of these exchange types also allow users to convert fiat currency like the U.S. dollar into cryptocurrency like Bitcoin at the market price. Coinbase’s GDAX is an example of this type of exchange, as is Kraken. Shapeshift provides a similar service without a fee.
- Direct Trading Exchanges: These platforms offer direct peer-to-peer trading between buyers and sellers. Direct trading exchanges don’t use a fixed market price. Sellers set their own exchange rate.
- Cryptocurrency Brokers: These are website-based exchanges that are like the currency exchange at an airport. They allow customers to buy and sell cryptocurrencies at a price set by the broker (generally at the market price plus a small premium). Coinbase is an example of this type of exchange.
- Cryptocurrency Funds: Funds are pools of professionally managed cryptocurrency assets which allows public buy and hold cryptocurrency via the fund. One such fund is GBTC.
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