What are Cryptocurrency Exchanges?


What are Cryptocurrency Exchanges?

Cryptocurrency exchanges are online platforms in which you can exchange one kind of digital asset for another based on the market value of the given assets. The most popular exchanges are currently Binance and GDAX. It is important not to confuse cryptocurrency exchanges for cryptocurrency wallets or wallet brokerages. Cryptocurrency wallets and wallet brokerages generally allow you to buy and sell a small range of popular digital assets (Bitcoin and Ethereum), which you can then send to a different exchange to trade for other digital assets like altcoins. This statement is not entirely exclusive though; most cryptocurrency exchanges will usually limit their users to only trade digital assets for digital assets, but a few allow trades of fiat currencies such as U.S. Dollars for cryptocurrencies. An example of such an exchange is Kraken, which currently accepts funds in the form of USD, JPY, CAD, and GBP, and supports trades with Monero, Ripple, and Litecoin as well as Bitcoin and Ethereum.

Cryptocurrency Exchanges and Cryptocurrency Wallets

If the whole section above was confusing, do not worry–we will explain the whole process of buying, selling and trading cryptocurrencies using both exchanges and cryptocurrency wallets. If you wish to invest your fiat currency (such as US Dollars) into a cryptoasset, you will need to set up an online account. Currently, Coinbase is the most popular and among the safest methods one can use. On Coinbase, you can buy and hold the most popular, and useful, cryptocurrencies, chiefly Bitcoin and Ethereum. We will get to why these two are so useful later on. After you have set up this wallet, you can use your wallet’s address to receive coins and the ability to send coins to other wallets.

What if you don’t only want to invest in Bitcoin or Ethereum, but instead want to invest in some altcoins like Ripple and Stellar? If your wallet does not allow you to buy and sell these cryptocurrencies, then you would need to set up a cryptocurrency exchange account on a platform such as Binance. Once you have set up an account on a cryptocurrency exchange, you will need to send coins to this account to start trading. From your crypto wallet, you will need to send Bitcoin or Ethereum (or whatever medium of exchange the crypto exchange uses) to the corresponding cryptocurrency address on your trading account. Now that you have coins to trade, you can exchange them for coins such as Monero and Ethos. However, if you wish to cash out on these coins for a profit, the process is quite tricky. This is because there are no addresses or wallets publicly available yet that provide both storage and a fiat gateway (the process of exchanging international fiat currencies to cryptocurrencies) for most altcoins. Therefore, you will need to trade these altcoins back for basic coins such as Ethereum. Then you will send these basic coins from your cryptocurrency exchange account to the address on your wallet (we told you it would be useful!), where you can then cash out on these coins.

Processes like these may have extra layers of legal complications. Therefore, we remind our readers to please read and educate themselves on the cryptocurrency laws in their local jurisdiction before trading cryptocurrencies. Some countries, such as the United States of America, treat cryptocurrencies as property subject to capital gains taxes. Others make the buying and selling of such cryptocurrencies entirely illegal.

Cryptocurrency Exchanges and Issues of Custody

So what’s the catch? Well, like all financial intermediaries that came before cryptocurrency exchanges, there are downsides. The majority of digital asset trading occurs on what are called “centralized exchanges,” or a CEX. For now, this is the type of exchange we will be referencing. These exchanges should be used with caution, because they require custody of your digital assets in order to make trades. This has large implications regarding the buying and selling of altcoins–the trading of altcoins on a cryptocurrency exchange implies your inherent lack of custody over your new assets.

This sacrifice of custody also makes sense because, just like in any banking or financial institution, exchanges will hold your digital assets for variable periods of time in order to accrue interest. These issues of custody and centralization have been a primary issue of concern for the blockchain community ever since Bitcoin gained traction in 2009, paving the way for a decentralized, financial economy. Luckily enough, we get closer to solving these issues every day. We believe new technology and performant digital applications will bring about a truly trustless, decentralized digital economy to the forefront of society.

Self-Custody at Ethos and The Ethos Universal Wallet

Ethos works every day to solve the issues concerning centralized transfer of custody. Upon the release of the Ethos Universal Wallet, we offered a solution to cryptocurrency exchange issues by creating a platform that allows users to keep self-custody of all their digital assets. This means that if you have altcoins on a cryptocurrency exchange platform that you want secured, you can set up an Ethos Universal Wallet, send the coins to your wallet’s address and maintain custody of all of your digital assets!

The Ethos Universal Wallet allows you to receive coins from other wallets and safely store multiple types of cryptocurrency in one place. Fortunately enough, the Ethos Universal Wallet uses SmartKey technology, which allows users to access and send cryptocurrencies in all of their wallets just using one single key. In future iterations of the Ethos Universal Wallet, we will be incorporating a Fiat Gateway within the app. This would allow users to buy and sell cryptocurrencies on our platform. We do this in accordance to our overall mission at Ethos: to make the wonders of the new digital economy accessible for all.