Lesson Learning objectives : What are cryptocurrency Exchanges ? How they fit into the Cryptocurrency Ecosystem ? This lesson address these important topics in a simple and efficient way to allow the participant to quickly understand Cryptocurrency Exchanges
What are Cryptocurrency Exchanges
Cryptocurrency exchanges are business which are privately own which allows their customers to trade digital assets/cryptocurrencies. Cryptocurrency exchanges can be brick and mortar or online platforms. However, most of the exchanges are online based. Furthermore TCCS Academy uses and recommends Binance online exchange platform (For a complete step by step lesson on how to open and use an exchange account visit on course number 5 How to Buy and Trade Bitcoin.)
Type of exchanges
There is mainly two types of exchanges centralized and decentralized exchanges.
Centralized exchanges : This type of exchange has the main characteristic that the assets (cryptocurrencies) which are sent or bought through them (some exchanges offer facilities to purchase cryptocurrencies through them through credit card or other payment methods) are store in accounts which the exchange holds the private key. In those type of exchange the user owns the public key (the address used to deposit the funds) but does not own the private key which belongs to the exchange. As this type of exchange is the most popular and effective (All major exchanges are centralized exchanges Binance Coinbase), user which want to enhance their security in regards to the funds once they finish their trading session they send the funds from the exchange to their wallet in which the user also owns the private key.
Decentralized exchanges : This type of exchange such as EtherDelta, IDEX do not store their customer funds in which they hold the private key. In order to be able to trade with those type of exchanges the customers has to link their wallet to the exchange. As such the customer funds always remain in their fully controlled wallet. However, this type of exchange typically suffers from low trading volume.
Exchanges in the Cryptocurrency Ecosystem
Exchanges are a core piece in the cryptocurrency ecosystem as they permit the mechanism of offer and demand to exist which creates the price of the cryptocurrencies. Typically on the bigger exchanges such as Binance there is one or multiple markets in which is possible to trade against. As an example you might have Bitcoin and US Dollar market available on the exchange. This means it will be possible to trade Bitcoin against Altcoins in the Bitcoin market and in the US Dollar market it will be possible to trade US Dollar against Bitcoin or Altcoins. However, it will not be possible to trade Altcoins against Altcoins as the two markets available (pairing) are Bitcoin (BTC) and US Dollar (USD).