Exchange

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DEFINITION

An exchange is a platform for virtual negotiations with cryptocurrencies, which allows clients (traders) to carry out purchase/sale operations of cryptocurrencies and/or exchanges of one type of cryptocurrency for another or for fiat money and, even for merchandise. in some exchanges. In this sense, exchanges can be compared to exchange houses that work with fiat money in the real world.

Through the exchanges, it seeks to facilitate the financial movements that clients need to make with their crypto assets. To facilitate the use of exchanges, most of them implement applications with interfaces that are easy to handle in an intuitive way.

EXCHANGE TYPES

Exchanges are a field of the virtual financial world that is constantly expanding. For this reason, it has been diversified according to the use and the needs that each client may require of this type of service for their cryptocurrencies. Exchanges can be classified into two large groups. On the one hand, there are centralized exchanges and on the other, decentralized exchanges.

1) Centralized Exchange (CEX): Since its first appearance in the cryptocurrency market, cryptocurrencies have had decentralization as one of its fundamental pillars. However, most of the negotiations are done through centralized means, as is the case with exchanges.

In many exchanges there is a trusted third person who mediates between the negotiations carried out by clients or traders through the platform. In this sense, the defenders of this type of negotiation allege that through centralization liquidity, dynamism and expansion are provided to the online cryptocurrency market.

Then, the decentralizing nature of the negotiations vanishes as there is a third party that mediates between them. In this case, the company that acts as a mediator between the clients is the centralizing entity of said negotiations. The centralizing person or company is the one who controls the inputs and outputs on the platform. In addition, it is the one that receives a commission for each negotiation carried out by its clients.

In centralized exchanges, it is the companies or mediating entities that set the exchange rates. In addition, they are also those that govern the cryptocurrency market, as well as the commission rate that must be paid for the transactions that are carried out through the platform.

2) Decentralized Exchange (DEX): In decentralized exchanges (DEX) there is no mediating entity between clients, the control of negotiations is carried out through specialized software that allows clients to carry out their transactions in P2P mode, from person to person. As there is no third party to mediate between the parties, the exchange rates are set by the clients themselves at the time of the negotiation.

When dealing with direct negotiations between clients, the system provides the character of privacy and anonymity between the parties that negotiate. In this sense, many people and governments argue that this type of negotiation, since it is not regulated by a trusted third party, lends itself to illegal activities, such as money laundering and financing activities that threaten the common good of society.

HOW DOES AN EXCHANGE WORK?

The exchanges work in a similar way to a conventional money exchange house, only that they specialize in trading cryptocurrencies. Although today there are several that also include fiat money in their business portfolio. When selecting an exchange to carry out some type of negotiation, the user must take into consideration if he wishes to carry out said negotiation through a centralized exchange or, on the contrary, if he wishes to carry out said negotiation through a decentralized exchange.

If the client wishes to sell cryptocurrencies, they must open a request for the service on the respective exchange. In this request you must reflect the amount of cryptocurrencies you wish to sell and the price at which you wish to sell those cryptocurrencies. An Orders book is opened on the exchange in which this offer is published so that it is visible to those interested in buying.

If it is a purchase, the user goes to the exchange in which they wish to make the purchase and, on the one hand, they can review the order book (Orders book) to find out about the offers available on the exchange and take the offer , or you can open a purchase request (Bids) in which you specify the value you want to pay for the transaction.