In simple terms, a cryptocurrency exchange is a digital marketplace where different cryptocurrencies can be bought or sold and traded directly by crypto and bitcoin traders.
With the rise of blockchain technology and the growing investment potential of cryptocurrencies, the need for cryptocurrency exchanges has also grown.
Coinbase is an example of a popular cryptocurrency exchange that facilitates the trading of several different types of cryptocurrencies including bitcoins.
A cryptocurrency exchange can take different formats such as the traditional exchange, brokers, direct trading platforms or cryptocurrency funds.
An example of a traditional cryptocurrency exchange is GDAX or Kraken. On this type of exchange, buyers and sellers trade cryptocurrencies in very much the same way that a stock exchange would operate. The price of the cryptocurrency depends on demand and supply and is basically centralized.
Transaction fees are charged by these types of cryptocurrency exchanges. On the other hand, peer-to-peer exchanges such as EtherDelta are decentralized, having no need for a middleman.
Coinbase is among the more popular exchanges and operates like a cryptocurrency broker. The Coinbase platform facilitates the buying and selling of cryptocurrencies using altcoins or fiat currencies such as the US dollar. It is an online platform that may be accessed by basically anyone with an internet connection.
Direct trading cryptocurrency platforms allow for peer-to-peer trading of cryptocurrencies. There is no fixed market price and sellers have the ability to establish their own prices.
Buyers who are seeking cryptocurrencies, are matched with sellers who are offering cryptocurrencies for sale. This is not the most efficient way to trade, but in some regions, direct trading is the only available option.
Most cryptocurrency exchanges are based outside the Western world in order to avoid too much regulation. Nevertheless, the majority facilitate trading using the fiat currencies of Western societies to purchase relevant cryptocurrencies.