A cryptocurrency exchange , or a digital
currency exchange ( DCE), is a business
that allows customers to trade
cryptocurrencies or digital currencies for
other assets, such as conventional fiat
money or other digital currencies.
Exchanges may accept credit card
payments, wire transfers or other forms of
payment in exchange for digital currencies
or cryptocurrencies. A cryptocurrency
exchange can be a market maker that
typically takes the bid–ask spreads as a
transaction commission for is service or,
as a matching platform, simply charges
fees.
Some brokerages which also focus on
other assets such as stocks, like
Robinhood and eToro , let users purchase
but not withdraw cryptocurrencies to
cryptocurrency wallets. Dedicated
cryptocurrency exchanges such as Binance
and Coinbase do allow cryptocurrency
withdrawals, however.
Operation
The exchanges can send cryptocurrency to
a user's personal cryptocurrency wallet .
Some can convert digital currency balances
into anonymous prepaid cards which can
be used to withdraw funds from ATMs
worldwide while other digital
currencies are backed by real-world
commodities such as gold.
The creators of digital currencies are often
independent of the digital currency
exchange that facilitate trading in the
currency. In one type of system, digital
currency providers (DCP) are businesses
that keep and administer accounts for their
customers, but generally do not issue
digital currency to those customers
directly. Customers buy or sell digital
currency from digital currency exchanges,
who transfer the digital currency into or out
of the customer's DCP account. Some
exchanges are subsidiaries of DCP, but
many are legally independent
businesses. The denomination of funds
kept in DCP accounts may be of a real or
fictitious currency.
A digital currency exchange can be a brick-
and-mortar business or a strictly online
business. As a brick-and-mortar business,
it exchanges traditional payment methods
and digital currencies. As an online
business, it exchanges electronically
transferred money and digital
currencies.
Often, the digital currency exchanges
operate outside the Western countries to
avoid regulation and prosecution. However,
they do handle Western fiat currencies and
maintain bank accounts in several
countries to facilitate deposits in various
national currencies.
Decentralized exchanges such as
Etherdelta, IDEX and HADAX do not store
users' funds on the exchange, but instead
facilitate peer-to-peer cryptocurrency
trading. Decentralized exchanges are
resistant to security problems that affect
other exchanges, but as of mid 2018 suffer
from low trading volumes.