For the last few years, cryptocurrency has been a hot topic among seasoned investors and individuals looking to make their first investment. You’ve likely received ads or seen commercials for different cryptocurrency ads and websites trying to get you to sign up. If you’re like most people, you might be asking yourself, “What is a cryptocurrency exchange?” Don’t worry, cryptocurrency exchanges aren’t as hard to understand as they seem. We’re going to break them down for you and explore what they are, what services they offer, and why they’re important.
What Is A Cryptocurrency Exchange?
A cryptocurrency exchange is a marketplace that brings together buyers and sellers of cryptocurrency. A cryptocurrency exchange is typically a business that runs a website or an app where people who want to buy or sell crypto can come to make their transactions. Crypto exchanges are a very important part of the crypto market, and they perform a variety of services for their users.
Cryptocurrency exchanges offer more services than just buying and selling crypto. Some crypto exchanges are offering crypto credit cards to help earn crypto cash back on purchases. Other exchanges allow users to stake their crypto, which means locking in your crypto for a certain time and earning interest on that crypto. We’ll cover this topic a little later. The point is that the services exchanges offer is what differentiates exchanges from one another.
Yes, there are lots of crypto exchanges, hundreds actually. With around 500 crypto exchanges to choose from, you can spend hours doing research trying to figure out which one to go with. Some popular exchanges include Coinbase, Binance, and Gemini. A helpful hint is to evaluate what you want to do. Consider the following questions when deciding which exchange to go with:
- Which cryptocurrencies do I want to trade?
- What are the fees associated with trading these currencies?
- Do you just want to buy/sell, or do you want to trade with margins or stake crypto?
- What country do you reside in and does the exchange support your national currency?
- Is their website/app user friendly?
You can always go into more detail when analyzing a crypto exchange, but we think these basic questions will help you narrow down a list.
What Services Do Crypto Exchanges Offer?
As mentioned above, one of the ways cryptocurrency exchanges differentiate themselves is by offering different services. In all exchanges, you’ll be able to buy and sell cryptocurrency. Some exchanges allow you to do either a limit order or a market order when buying or selling. A market order is when you buy or sell crypto instantly for the market price of the asset you are selling. A limit order is when you pledge to sell your assets when the market price hits a certain price. Usually your limit order only lasts a certain time period, so if the market never hits your limit order price, your order is canceled.
Another service that exchanges offer is called staking. Staking involves setting aside a certain amount of crypto and pledging not to sell it. When you stake your crypto, exchanges usually lock it in so you can’t do anything with it. Staking is a way to help the blockchain network. When you stake your crypto, it allows the cryptocurrency transactions to be verified, thus helping the cryptocurrency itself. In return for staking your crypto you’ll earn rewards (interest) in crypto.
Recently, many crypto exchanges have started offering Bitcoin credit cards that help you earn cash back rewards in crypto. Some of these cards will connect right to your crypto wallet to help you spend your crypto without having to convert it into fiat currency. Earning rewards in crypto is a good idea because the rewards have the potential to grow in value.
Deciding which services are most important to you will help you narrow down your favorite exchanges.
Why Are Cryptocurrency Exchanges Important?
Cryptocurrency exchanges are important because they create a marketplace for crypto. Without crypto exchanges, it would be super hard to connect buyers and sellers. Crypto exchanges also consolidate pricing information on hundreds of cryptos.
One of the most important reasons we have crypto exchanges is to provide a place to store crypto. When you buy crypto via an exchange, your crypto will usually be transferred to a crypto wallet that the exchange sets up for you. When you make an account for the exchange, your crypto wallet is set up.
Lastly, one of the most important benefits of crypto exchanges is the security they offer. Digital assets are vulnerable to cyber attacks where they can be stolen. Hackers have already stolen billions in crypto. Exchanges offer multiple layers of security that provide investors comfort when holding small or large amounts of crypto.
Crypto exchanges are vital for the health and longevity of crypto. Exchanges offer a marketplace where buyers and sellers can connect to suit both of their needs. Choosing which exchange to use can be difficult because there are so many, but as you list what is most important to you, you’ll be able to make the right decision.
Below, we’ve included some frequently asked questions associated with crypto exchanges.
What Is Cryptocurrency?
Cryptocurrency is a digital asset that can be used for various purposes. Such as investing, hedging, or buying goods and services. Cryptocurrency is decentralized, which means it isn’t regulated by any government or financial institution. Some of the more popular cryptocurrencies include Bitcoin, Ethereum, Dogecoin, and Solana.
How Do I Sign Up For An Exchange?
Signing up for a crypto exchange is a super easy process. You first create an account like any other website. After creating an account, the exchange will need to verify your identity and location because there are geographic and age limitations on trading crypto. You’ll need to enter in some personal information in order to complete the verification process. You’ll also need to enter in a payment option to fund your account to begin buying crypto. Once your account is verified, you’re ready to trade!
How Do I Invest In Crypto?
Once you’ve created an account with an exchange, it’s time to start trading. Taking your first steps in crypto investing can be very intimidating. Like many things, there is not one right way to trade crypto. However, we recommend getting familiar with crypto trends by reading market news.
Once you familiarize yourself with the crypto market, you can also start doing some research on currencies that sound interesting to you. As you research different cryptos, you might be inclined to buy some crypto. You should develop a plan regarding if you’re going to actively watch the market and trade frequently or hold your investment to appreciate in value over a longer period of time.