Introduction to stock exchanges

Stock exchanges are specialized platforms on which cryptocurrencies are traded. On such services, it is possible to exchange different cryptocurrencies for each other, and often for dollars and other national currencies. Primarily, the goal of stock exchanges is to enable users to easily and easily exchange cryptocurrencies for money or exchange one cryptocurrency for another. The first stock exchange to enable cryptocurrency trading was the Japanese stock exchange MtGox. MtGox was created in 2006, it was originally an online platform for gamers. This platform allowed them to trade and exchange cards for playing board games.

In July 2010, just two months after bitcoin was first used for payment (“Bitcoin Pizza Day”), MtGox launched a platform for bitcoin trading. The moment it appeared, this stock exchange offered people something completely new, the opportunity to buy or sell bitcoins to anyone from their home, with a few clicks on their computer.

In the years that followed, it turned out that this stock exchange had a huge impact on both the price of bitcoin and cryptocurrency trading. It is estimated that during 2013 and the beginning of 2014, as much as 70% of the entire world bitcoin trade took place on this stock exchange. In 2014, a major hacker attack took place, after which many MtGox users were left without much of their bitcoins. This significantly affected the price of bitcoin, which dropped very quickly from over $ 1,200 to just over $ 200.

Security problem

In the meantime, other stock exchanges such as Bitstamp.net, Poloniex.com, etc. have been developed. The example of MtGox a best shows how important it is to keep our funds so that they are safe and secure. When we store Bitcoins or some other cryptocurrency on the stock exchange, the private keys of our addresses, which are also all that is needed to send funds, are in the possession of someone else. This means that if someone manages to endanger the security of the stock exchange and break into their system for storing private keys, they will very likely permanently steal a large part of the funds, which directly means that they will also endanger us. Stock exchanges usually do not take responsibility in such situations, so it is the users who bear the loss.

Many people practice keeping their cryptocurrencies on stock exchanges. The reasons for this are different. Some want cryptocurrencies to be readily available to them in case they decide to sell them. Some are simply lazy to open a wallet and keep their own funds, and there are those who are not aware of the risks that exist when keeping cryptocurrencies on stock exchanges. Whatever the reasons, this practice is very dangerous. There is no less secure place to store cryptocurrencies than stock exchanges. Due to the large amount of money that is on them, the stock exchanges are under constant attacks by hackers. Don't even think about using stock exchanges without 2-factor authentication, although that only prevents your account from being hacked, if they hack the stock exchange itself, there is no help. It is true that since the collapse of MtGox, stock exchanges have realized more significantly what the potential threats are, so in this regard they have begun to invest significantly more in security and creating mechanisms for safer storage of sensitive data. The most famous stock exchanges, where the most trades take place, have been present on the market almost from the very beginning of cryptocurrency trading, so they currently provide a more or less efficient and secure service. Yet, despite all safeguards, successful attacks on major stock exchanges continued to occur after the MtGox incident. In 2015, Bitstamp was hacked, and in 2016, Bitfinex.

Trading on stock exchanges

The most common reason for using stock exchanges is to trade cryptocurrencies. The principle of trading is the same as on any other stock exchange. A person who wants to trade cryptocurrencies must first provide certain funds on the stock exchange. Bitcoins are most often deposited on the stock exchange, and on some stock exchanges it is possible to deposit national currencies such as the euro or the dollar. After that, a certain cryptocurrency is selected, which is bought and which is later sold at a better price.

What distinguishes cryptocurrency exchanges from classical exchanges is, first of all, a looser regulatory framework (where it exists at all), which causes higher risk, but also significantly higher price oscillations and opportunities for enormous profits. There are various advanced options for more serious traders, but that is beyond the scope of this course. When trading on the stock exchange, it is very important to take into account the conditions of use as well as the legal regulations, both in the country of the person who invests money on the stock exchange, and in the country where the seat of a particular stock exchange is located. This prevents legal problems that may arise when withdrawing money from the stock market. The situation here is a bit complicated by the fact that cryptocurrency trading is completely unregulated in many countries, but that is slowly changing.

Cryptocurrency trading is an increasingly evolving field. Lately, the daily volume of trading often exceeds 10 billion dollars, and the number of new users who register daily on the stock exchanges is measured in tens, even hundreds of thousands. A significant number of traders from some other platforms or from other systems such as trading in precious metals, indices and bonds have over time switched to cryptocurrency trading as potential profits are higher. Specialized tools have also been developed that make it easier for users to follow various stock exchanges, stocks and trends in their prices. It is predicted that with the progress of regulations around the entire area, the number of large investors who will enter the cryptocurrency market will increase, and who are now avoiding it precisely because of legal uncertainty.