Understanding Crypto Exchanges: What to Know
The rise of cryptocurrency has not been a solitary phenomenon; related services have grown alongside it. The most common of these is the humble crypto exchangea service used by millions of people around the world daily.
Whether accessing bonuses like a $100 no deposit bonus with free spins from a crypto casino or purchasing new tech gear online using Bitcoin, there are many instances where you may encounter a crypto exchange. This is particularly true if you prefer to trade your fiat currency for crypto on an as-needed basis.
Whether youre new to crypto or experienced but want to learn more, keep reading as we delve into the world of crypto exchanges and see what they are, how they operate, what they gain from people using them, and a few other things you should know about them.
What is a crypto exchange?
A crypto exchange is a company that provides services relating to the purchase and sale of crypto and the conversion of fiat currency into crypto. While these exchanges operate exclusively online, the largest ones also have physical offices but usually direct users to their online platforms.
Crypto exchanges operate in three primary ways.
In its simplest form, a crypto exchange operates similarly to a forex exchange in that it allows you to convert your fiat currency into crypto while charging you an equivalent rate (plus a service fee) and then crediting your account with your chosen coin.
Other exchanges operate similarly to stock exchanges. When you own cryptocurrency but would like to exchange one coin for another, exchanges allow you to sell your coins and use the funds gained to purchase other coin options.
Finally, crypto exchanges can also be used like banks in that they can store your crypto rather than transfer it to a wallet. This way, your crypto is already on the exchange and can easily be converted or used without needing to be redeposited.
Crypto exchanges are generally safe and operate under the scrutiny of law.
Crypto exchanges can generally be trusted. While some may seek to rip off or even scam users, those registered with the proper authorities and who have been around for a long time are trustworthy.
This is particularly true in the USA, as exchanges are subject to several regulations depending on their services. Various federal entities, listed below, enforce these regulations:
Securities and Exchange Commission (SEC)
Exchanges that deal with cryptocurrencies considered securities (DASH, XRP, TON) are answerable to and audited by the Securities and Exchange Commission. This body focuses on investor protection and works to ensure that each transaction is valid and devoid of any illicit action or intent.
Commodity Futures Trading Commission (CFTC)
Some coins (Bitcoin and Ethereum) are considered commodities rather than securities. When this is the case and an exchange deals with these coins, the Commodity Futures Trading Commission (CFTC), which oversees derivative markets and crypto futures, often provides oversight.
Financial Crimes Enforcement Network (FinCEN)
FinCEN, or the Financial Crimes Enforcement Network, is an organization that combats fraud and money laundering in almost every financial institution in the US. As such, FinCEN sets the rules relating to AML (anti-money laundering) and KYC (know your customer) policies and ensures that organizations such as crypto exchanges follow all applicable legislation.
In addition to the three governing bodies above, many states also have individual regulations and frameworks within which exchanges must operate. While these vary from region to region, the common thread is ensuring crypto is used safely and not for crime.
Exchanges benefit from users accessing their services.
There are several main ways in which exchanges benefit financially by providing services to customers:
Service/Trading Fee
Almost all exchanges charge a small fee for each trade conducted using their services. This service or trade fee is commonly calculated as a percentage of the total trade value, although a flat rate can also be used.
Withdrawal Fee
Should you have crypto stored in an exchange, you may be required to pay a nominal fee if you wish to withdraw funds to your bank account as fiat currency. This fee may also be charged if you attempt to withdraw crypto coins to a private crypto wallet.
Listing Fees
One of the most prominent ways exchanges earn a decent income is when a new coin is listed. The founder of the coin must pay a listing fee for the coin to be listed on the exchange and become available for trading.
Exchanges hold the power of your crypto.
Despite having access to your crypto exchange account, you do not hold your actual crypto. Instead, the private key to the wallet where your crypto is stored is held, managed, and owned by the exchange you use.
Therefore, when finding an exchange to use, conduct proper research into its operations and reputation. Any crypto you store with them will essentially be theirs until you withdraw it.
Every exchange is different and has a different focus.
The saying that not everything is created equally can also be applied to crypto exchanges. Some are streamlined to prioritize lower fees and a higher number of simple, small transactions. Others may lean more toward significant investments/conversions accompanied by additional features but cost significantly more.
When finding an exchange, look for one that best suits your needs. There is no reason to pay a premium for services you wont use when a simpler, cheaper exchange will suffice.
Read more: https://www.tronweekly.com/understanding-crypto-exchanges-what-to-know/
Text source: TronWeekly
