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What is a Bitcoin Exchange?

A Bitcoin exchange is an online marketplace where traders can buy and sell Bitcoin using fiat currencies and altcoins. These …

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The post What is a Bitcoin Exchange? appeared first on CoinDiligent.

Republished by Plato



bitcoin exchange definitionA Bitcoin exchange is an online marketplace where traders can buy and sell Bitcoin using fiat currencies and altcoins.

These platforms essentially function as matching engines that are used to safely match the orders of those looking to buy Bitcoin with those looking to sell, while acting as an intermediary to ensure trades are completed without issues.

Bitcoin exchanges can be split into 3 main categories:

Depending on what you want to use the exchange for, you’ll be better suited with one category, or the other. For example, if you’re looking to buy Bitcoin as a long-term investment, then spot exchanges are the better fit for you.

How Bitcoin exchanges work

For the most part, Bitcoin exchange platforms are designed to be as accessible as possible, which makes it easy for new investors and inexperienced traders to quickly get to grips with their features.

Usually, Bitcoin exchanges works by allowing users to browse a variety of different digital currency markets, including those for Bitcoin, and often altcoins and stablecoins too. Once a market is selected, traders will then be able to use the order options to create limit or market orders to open a buy (bid order) or sell (ask order) on the order book.

Market orders are filled automatically at the best available rate, whereas limit orders offer more flexibility and will be filled when the market conditions reach those specified in the order.

Depending on the platform you use, the exchange will usually offer either crypto to crypto trading, fiat to crypto trading or both. As the names imply, an exchange offering crypto to crypto trading allows you to trade one cryptocurrency against another, e.g. BTC/ETH, whereas fiat to crypto trading allows you to trade fiat currencies against cryptocurrencies, e.g. BTC/USD.

These platforms can also be divided into two types: spot and derivatives exchanges. Spot exchanges are the most common type and allow traders to directly trade cryptocurrencies, whereas derivatives exchanges are more complex platforms where users trade derivatives like futures and options which track the value of an underlying cryptocurrency and are settled at a later date.

For the most part, those looking to trade Bitcoin for the first time will likely be best served by spot exchanges, whereas more advanced traders that need to trade on leverage or require increased order flexibility may prefer to trade on a derivatives exchange.

Getting started on an exchange usually requires a simple registration process which takes just minutes. After that, if you are using a crypto to crypto exchange, you may need to top up your balance using your external wallet, or add your debit/credit card to the exchange for fiat to crypto purchases.

Things to keep in mind

Exchanges charge fees

As businesses, digital currency exchanges make money by charging customers a small fee on each of their trades. For the most part, these fees are usually very low when buying Bitcoin with another cryptocurrency, but can be much higher when purchasing with a credit card, debit card or wire transfer.

The two most common types of fees you will encounter when buying digital currencies like Bitcoin are maker and taker fees. In short, taker fees are charged to trades that remove liquidity from the market, whereas maker fees are charged for orders that add liquidity to the market. Generally, the taker fee will be larger than the maker fee, though some platforms do charge a flat fee regardless of whether you are a maker or taker.

Depending on the liquidity of the exchange, you might also want to consider the spread. This is the difference between the lowest ask price and the highest ask price on a particular trade pair.

A high spread can indicate you get less digital currency for your money, an issue typically found at trading platforms with poor trading volume.

Besides charging a fee on each trade, some trading platforms also charge a withdrawal and/or deposit fee. Deposit fees are usually very small and only applied to deposits below a certain threshold, while withdrawal fees usually closely reflect the mining fee needed to ensure transactions are confirmed relatively quickly. You will only need to pay withdrawal fees if you with your funds to your external Bitcoin address.

For example, if you are looking to buy two bitcoin at $10,000 each, and the exchange charges a 0.5% fee, then your fee can be calculated as ($10,000 * 2) * 0.5% = $100. This is charged on top of the $20,000 used to actually acquire the bitcoin, so your total expenditure would be $20,100.

Most cryptocurrency exchanges require identity verification

Identity verification, or more commonly known as KYC (know your customer) and AML (anti-money laundering) verification is a process many Bitcoin exchange platforms employ to comply with regulations and prevent the use of cryptocurrencies for illegal purposes.

KYC requirements are mostly seen at cryptocurrency exchanges that have a fiat on-ramp, allowing customers buy cryptocurrencies with fiat currencies. Some examples of these include Coinbase, Coinmama, Bitit, and Kraken.

With that said, many exchange platforms allow unverified users to buy or sell a small amount of cryptocurrency without passing KYC checks.

Although completing identity verification is generally considered to be a hassle, the process usually doesn’t take long and only needs to be done once.

For the most part, KYC checks will involve answering some basic identity questions, such as your name, current address and resident country, and you will also need to upload some proof of identification—typically a passport, national identity card or driver’s license. Some platforms also ask for a recent utility bill and a selfie as further proof of your identity.

Oftentimes, these documents are automatically processed, leading to near-instant verification, whereas some platforms still manually these documents before verifying your account.

Exchanges are not always safe

As the cryptocurrency trading industry has grown in recent years, many exchanges are now used to store huge amounts of cryptocurrencies. Unfortunately, this increased popularity has also led to unwanted attention from hackers, who seek to exploit loopholes in the way some of these platforms store user funds to commit theft.

For the most part, these hacks tend to affect newer, less secure platforms, though several major cryptocurrency platforms have also fallen victim to hackers. For example, Bitfinex—currently considered to be one of the most reputable exchanges—has been hacked twice since it opened in 2012. Likewise, even the world’s most liquid spot exchange Binance was hacked for $40 million in 2019.

Fortunately, customers were eventually reimbursed for both of these cases, but not every hack has a happy ending. Likewise, there are also cases where the exchange operators simply up and leave with customers funds, including the recent PlusToken exit scam, which saw a reported $2.9 billion worth of digital currencies stolen. The funds are rarely recovered in these situations.

With that said, although the majority of digital currency platforms employ strict security protocols to keep your funds safe, we only recommend keeping the funds you intend to trade with on these platforms. Any excess should be withdrawn to a more secure external wallet, such as a hardware wallet.

Example of a trade on a Bitcoin exchange

To help clarify exactly how to trade Bitcoin, we will run through a quick example.

Let’s suppose you want to place a market order for 5 bitcoins and the current going rate is around $10,000 each. By placing a market order on a cryptocurrency exchange for 5 BTC, you will buy 5 BTC at the lowest available ask price available in the order book.

For example, if there is 3 BTC available at $9999.90 and 10 BTC available at an ask of $10,000, then the first three bitcoins of your order will be filled at $9999.90, whereas the remaining two will be filled at $10,000. As such, the total cost of buying 5 BTC would be $49,999.70 (3* $9999.90) + (2* $10,000), plus the associated market taker fee as described earlier.

Alternatively, if you think Bitcoin is likely to decrease in price and want to buy it at a lower value, then you can instead open a limit order. As an example, if Bitcoin is currently worth $10,000, but you think it will drop to $9,500, you can place a limit order of $9,500 that will be added to the order books. This order will only be filled if Bitcoin does indeed drop to $9,500 or below. Once filled, you would need to pay a maker fee on top of the cost of buying the Bitcoins.

Decentralized exchanges

Although most Bitcoin exchanges can be considered centralized platforms, a large number of decentralized exchanges have appeared in recent years.

Decentralized exchanges differ from their centralized counterparts in that they have no central authority but still allow the safe peer-to-peer trading of digital currencies like Bitcoin. Most decentralized exchanges are non-custodial, which means traders retain full control over their cryptocurrencies and are hence less at risk of theft.

Beyond this, decentralized platforms typically require less personal information from users and can be used in countries where centralized platforms are restricted, such as the United States and China.

However, these trading platforms are often much slower and less intuitive than centralized platforms and typically suffer from relatively poor liquidity. Likewise, a lack of advanced trading tools and derivatives can make them unsuitable for professional traders.

Nonetheless, if privacy and security are your primary concerns, then decentralized cryptocurrency exchanges are likely the way to go. Likewise, Bitcoin mining is another private way to obtain BTC.

pascal thellmann

Pascal Thellmann is an algorithmic trader mostly focused on market making. You can get in touch with Pascal on LinkedIn or Twitter.



US House Financial Services Chair Waters Recommends Joe Biden Rescind OCC Crypto Guidance

House Financial Services Chair Maxine Waters told President-elect Joe Biden to undo the OCC’s crypto guidance after he takes office next year.




U.S. Representative Maxine Waters, who chairs the powerful House Financial Services Committee, recommended that President-elect Joe Biden rescind or monitor all of the cryptocurrency-related guidance issued by the Office of the Comptroller of the Currency.

In a letter sent to the incoming president Friday, Waters wrote that her committee has “conducted extensive oversight” over President Donald Trump’s administration, and listed a number of actions Biden’s administration could take to undo what she described as the harms of Trump’s term.

Waters’ comments come weeks after other Financial Services Committee members, including Reps. Rashida Tlaib and Jesus “Chuy” Garcia criticized Brooks’ crypto-related actions during the COVID-19 pandemic and just days after the lawmakers introduced a bill that would require stablecoin issuers to seek bank charters and regulatory permission to introduce stablecoins.

“As you begin to carry out the mandate given to you by the American people to restore trust in the federal government, I would like to highlight several areas where you and your team should immediately reverse the actions of your predecessors,” she wrote.

She also recommended that Biden monitor the OCC’s advanced notice of rulemaking around digital activities conducted by banks and the public input period.

“Your appointed officials at the Office of the Comptroller of the Currency (OCC) must also not assume, as their predecessors have, that a law Congress passed over 150 years ago somehow gives, them authority to provide a national bank charter to non-bank fintech or payment companies,” she wrote.

Each of these recommendations would undo work conducted by Brian Brooks, the Acting Comptroller of the Currency. Brooks was recently nominated to serve a full five-year term by Trump.

Under a section on financial stability, Waters wrote that the Financial Stability Oversight Council and Office of Financial Research should publish their analysis on developments and the existing regulatory framework around digital assets and distributed ledger technology.


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Intellectual Capital Firm Calls XRP One of the Most Intriguing Assets in Crypto

The publicly-traded risk management firm FRMO Corp. is making the case for XRP. In its latest letter to shareholders, the firm outlines its bullish stance on the crypto markets and specifically outlines XRP as a unique digital asset due to the fact that it’s not mined and is deflationary in nature. “XRP, itself, is one of the […]

The post Intellectual Capital Firm Calls XRP One of the Most Intriguing Assets in Crypto appeared first on The Daily Hodl.




The publicly-traded risk management firm FRMO Corp. is making the case for XRP.

In its latest letter to shareholders, the firm outlines its bullish stance on the crypto markets and specifically outlines XRP as a unique digital asset due to the fact that it’s not mined and is deflationary in nature.


“XRP, itself, is one of the more intriguing currencies, as it is explicitly deflationary. There is a modest cost for transacting in XRP, which is not actually paid to any intermediary. The fee, which is a very small fraction of a unit of XRP and which is used to protect the network, is simply destroyed. Therefore, the number of XRP units is constantly decreasing.”

XRP has a total supply of 100 billion coins, and each time an XRP transaction is sent, 0.00001 XRP is burned. The firm says that could become a factor in XRP’s value proposition if the coin is widely adopted in the mainstream.

“If the transaction velocity of XRP were to rise greatly, the number of currency units would decline greatly, thereby creating a substantial return even if the coin itself did not experience an increase in market capitalization. It would, however, experience an increase in value per unit.”

FRMO says its private partnership investments now hold positions in Bitcoin and many of the top 10 largest crypto assets by market cap.

The firm is also mining Ethereum (ETH), Ethereum Classic (ETC), Zcash (ZEC), Litecoin (LTC) and Bitcoin Cash (BCH).


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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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America Is Beating Asia for Once in the Field of Crypto Trading

Bitcoin is growing like there’s no tomorrow, and for once, it looks like Asia is being beaten out by North America in terms of cryptocurrency love and adoption. North America Is Becoming Number One More coins and cryptocurrencies are flowing into North American exchanges than into Asian exchanges. This is an odd occurrence considering Asia

The post America Is Beating Asia for Once in the Field of Crypto Trading appeared first on Live Bitcoin News.




Bitcoin is growing like there’s no tomorrow, and for once, it looks like Asia is being beaten out by North America in terms of cryptocurrency love and adoption.

North America Is Becoming Number One

More coins and cryptocurrencies are flowing into North American exchanges than into Asian exchanges. This is an odd occurrence considering Asia has typically outdone all other regions in terms of crypto appreciation. There was a time when South Korea accounted for more than one-quarter of the world’s crypto transactions, and no doubt China has been the biggest influencer in the space.

But as of late, North America is moving up the financial ladder and proving itself to be a major hub for crypto trading. In fact, weekly inflows to American exchanges have surged by more than 7,000 times what they were at the beginning of the year. Overall, 216,000 bitcoins – worth approximately $3.4 billion at the time of writing – made their way into American exchanges in mid-November.

Ciara Sun – a representatives of Huobi Global Markets in Seychelles – commented in a recent statement:

The sudden influx of institutional interest from the North American region is driving a shift in bitcoin trading, which is rebalancing asset allocations across different exchanges and platforms.

Some are claiming, however, that the call of North America as a leader in the crypto space is coming a bit early. Chainalysis figures show, for example, that East Asia is still a major exporter of crypto funds, and still serves as one of the largest regions for digital asset activity. In addition, many others claim that regulation in Asia is quite different than what it is in North America. This puts a dent in the overall figures, and they claim that it cannot be deciphered just yet which one is more dominant.

Curtis Ting of the U.S. exchange Kraken in San Francisco explained:

You’re increasingly starting to see distinctions in the market between those that have no regulatory or little regulatory clarity versus those that do. Larger institutions seek the predictability that a regulated venue offers.

Putting this aside, however, Chainalysis shows that the activity occurring in major North American exchanges – i.e. Coinbase, Kraken, etc. – is considerably larger than what’s happening in Asian exchanges. In the past, North America has edged forward like this, but never by such a big margin.

It is estimated that approximately 1.6 million in bitcoin is making its way into North American trading platforms each week. By contrast, Asian exchanges are seeing only 1.4 million units.

Regulation Is the Key

At this stage, it looks like America is offering a stricter, more regulated environment, which appears to be attracting larger traders. Christopher Matt of 3iQ in Canada states:

A lot of U.S. funds are trading with large U.S. counterparties. It tells you right there how important the regulatory nature of the space is and having venues to trade on that are regulated.

Tags: Asia, bitcoin, North America Source:

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