The main functions of cryptocurrency exchanges that the exchanger does not have. Difference in exchange rates and commission. Reputation and security. List of cryptocurrencies
The blockchain technology industry is still quite young, when compared to the history of other financial institutions. Therefore, various semi-legal structures and atavisms appear from the fiat sectors of the economy. At the same time, the emergence of exchanges has been an important aspect for the crypto world, and the existence of both structures on an equal footing only confirms the early stage of blockchain development.
The fiat market is usually a domain of large financial structures. You can exchange one currency for another only through interbank trading. Even the well-known Forex market does not offer the option to cash out in a specified currency.
Exchangers have always been the easiest and most convenient way to exchange currencies, especially in the electronic money industry. A good example are the payment systems AdvCash or Payeer, each of which have their own infrastructure.
In the fiat market, most people do not have the opportunity to trade using exchanges, since fiat money is regulated by banks. Forex trading, which gained popularity in the late 90s, is not suitable for direct currency exchange and is used only as a way of speculation to make money.
With the advent of cryptocurrencies, the situation has changed dramatically. This is largely due to the technology of forwarding and the lack of regulatory functions that allow removing the restrictions of classic fiat financial markets.
There are many differences between exchanges and crypto exchangers. Let’s briefly dwell on the main differences:
Owner. The exchange does not benefit from the sale of cryptocurrencies, but only provides a trading platform. The exchanger is the direct owner of the crypto asset, who strives to achieve maximum benefit from each trade.
Reliability. The marketplace is a large platform, and its owners place emphasis on business continuity and integrity. With exchangers, the situation is opposite. All work of exchangers is based on trust in a spot position, which can be closed at any time.
Pricing. All participants determine the market price, which makes it balanced and fair. On exchange sites, the price is determined by the beneficiary.
Trading. You can trade on the exchange, but there is no such option with exchangers.
Stocks. The marketplace has an almost unlimited supply of cryptocurrencies as thousands of participants trade simultaneously. The exchanger operators are often limited in currency, and their crypto wallets rarely hold more than 10-15 bitcoins.
The main difference between a cryptocurrency exchange and a simple exchange is the transparency of all operations.
Given the complete anonymity of the blockchain, an exchange resource can, for example, steal user funds. Such a service can change quotes, restrict the withdrawal of funds, etc.
When working with an exchange, such a situation is impossible to occur. The main source of profits of the company is commission. Therefore, legal crypto exchanges are interested in maintaining their reputation in order to attract new traders.
Serious profits can be made on an exchange resource if it is built on automatic data processing. The formation of the exchange rate value occurs automatically, focusing on the tariffs of crypto-exchanges and other trading platforms. With large movements in the market, you have time to buy currency at a lower price or sell at a higher price. But do not forget that the difference in the purchase and sale price of an asset can be up to 5%.
On exchanges, prices are formed exclusively by market players. The price for buying cryptocurrencies offered is always up-to-date and the fairest. The difference in the price of buying and selling Bitcoin will not be big.
Crypto exchanges are obliged to ensure the smooth operation of the site and resolve possible conflicts of interest between different traders. Therefore, a professional Support Service is offered on such platforms, which helps in resolving any issues 24/7. Support representatives will help with the following issues:
Verifying your account.
Deposit and withdrawals of funds.
Any issues with the interface of the trading platform.
Exchange services, unlike exchanges, rarely offer good customer support. Most often, only a chat bot works on exchanger sites, collecting contact information of visitors through a special form.
On the exchange, you can trade and earn money on changes in currency rates. The exchanger has only two functions: buy and sell. At the same time, the difference in quotations is so significant that even with knowledge of the market, it is almost impossible to profit from the price difference.
Lack of exchange offices and the advantage of exchanges is margin collateral.
It allows you to trade with borrowed funds. On the one hand, this seriously increases risks. On the other hand, with the right trading strategy, margin trading allows you to earn and operate a lot of coins at the same time.
Another significant difference is technical functionality. On the exchange, you can connect robotic scripts to help in trading, and even fully automate the process of depositing and withdrawing funds. Even a novice trader can set up automatic withdrawals of cryptocurrency to a fiat wallet using the API.
The main task of the crypto exchange is to create convenient trading conditions for all market participants. The speed of execution of the transaction is important for every trader. On trading platforms, the exchange of one cryptocurrency for another takes place within a few tenths of a second. The withdrawal is limited by the regulations of payment services, where money is received instantly.
With exchange services, the processing time of transactions usually takes longer. You need to wait until your application is reviewed and approved.
It has already been mentioned that there are many players on the exchanges, where each trader has a certain number of cryptocurrencies on the balance sheet. On EXMO, for example, daily trades in excess of 1000 BTC are performed.
Most of the exchange services do not have access to such volumes of funds. Some large exchangers can offer a volume of approximately 100 BTC. Altcoins are often even worse as they are not a liquid commodity that is rarely traded. Holding a large number of altcoins for exchange platforms is not profitable or can even be unprofitable. The only exceptions are coins based on PoS.
The marketplace can add an asset of interest to the listing, and traders carry out trading and filling.
It is almost impossible to empty the stocks of the exchange, since the amount of funds are comparable to tens of thousands of Bitcoins. Even if this happens, new players will return the entire volume, as soon as possible.
The interface, simplicity, ease of interaction with fiat crypto assets are three key advantages of crypto exchanges.
Of course, there are sites and scripts that allow you to exchange cryptocurrency using only the public address and the crypto wallet number. Besides the fact that such transactions are risky, the transaction speeds are slow.
To get started on an exchange, you need to perform a number of actions before being able to trade:
Furthermore, the process is very simple. Buying BTC at market value is quick and can be done in one click. Withdrawing money to a bank card – in two clicks!
With exchangers, you will have to enter confirmation keys for the transaction and wallet numbers every time, which is not very convenient.
Exchange services charge various fees, some are as follows:
To the miner. One of the biggest costs of exchanging cryptocurrencies for fiat funds. The commission is floating and is not included in the exchange rate. The mechanism consists in the fact that the participant transfers money to the wallet, where the owner makes a similar transfer from card to card. That is, the actual migration of Bitcoin across the blockchain.
Costs associated with the terms of the creator of the exchange system.
Payment for urgent transactions. If we consider the volatility of cryptocurrency quotes, then any delay can be unprofitable. During normal times, a transaction can take an hour. At times of high activity on the market, it takes up to several days. During this time, the value of the cryptocurrency can fall several times.
Payment system commission for withdrawal. Payoneer, Paypal, AdvCash — all these services charge commission for depositing funds from third-party sources. The fee ranges between 2-3% of the amount deposited.
The cost of banking services.
When withdrawing 1 BTC to a bank card, you can lose over 15%.
When using EXMO or other exchanges, there are no commissions. Losses, at most, are capped at 3%. In addition, due to the lack of actual Bitcoin migration across the blockchain, the execution time for financial transactions is reduced from days to minutes.
The exchange provides a unique opportunity that no exchange service can provide — crediting funds directly to the wallet. Usually, a separate public address is created for this, which is connected to the pool.
All mined coins are immediately deposited to the miner’s exchange wallet, where they can easily be exchanged for a selected cryptocurrency or be cashed out.
Early blockchain users benefited from and appreciated the anonymity, and the ability to transfer money anywhere in the world. Today, the situation has changed dramatically.
With cryptocurrencies becoming popular, tax authorities began to pay attention to traders and levy income tax, fines, and penalties for non-payment of taxes.
Modern crypto-exchanges, thanks to user verification and storing trading history, have simplified the process of communication with tax authorities.
This reduces risks, simplifies the process of interacting with the state and paying taxes.
As stated, private services rarely offer a wide pool of assets. As a result, many interesting and fast-growing projects are not available on exchange resources.
Large crypto exchanges only add new currencies to the listing following a careful assessment. Users can be sure not to fall into the trap of scammers. In addition, all assets are always available at the most attractive rate.
This is an important component for potential buyers. When carrying out a transaction on the exchange page, you have to submit payment details. If the site is hacked, the details can fall into the hands of the attackers.
Exchanges are well protected from DDoS attacks and exploits. This makes them a convenient way to exchange one crypto asset for another or for storage. Only cold wallets, without network access and a physical confirmation key, are more reliable.
Market pricing on the exchange offers more value, reliable transfers and makes it easier to pay taxes.
Classic exchange platforms have receded into the background. The main advantage of exchangers is potential anonymity. Although it is worth noting that cryptocurrencies are moving from “illegal means of payment” to the category of a full-fledged currency. Thus, the issue of maintaining anonymity is not so acute.
Modern crypto exchanges have many advantages, some are as follows:
Minimum difference between the purchase/sale price of an asset.
Speed and convenience of financial transactions.
Ability to work with any existing cryptocurrency.
Simplification of taxation and regulation.
Protection from intruders.
High level of security.
Both structures have found their place in the modern economy, and the final choice remains with the user.