In the previous article, we described what a wallet is and why it is of fundamental importance to have one in the blockchain and cryptocurrency field: its use can be comparable, in fact (in extreme synthesis), to have a home banking to be able to spend fiat currency.
A usable tool, together with your wallet, is the exchange. It allows users to buy and/or sell their cryptocurrencies between them or in exchange for FIAT money. Let us remember that the FIAT currency is the legal tender currency that is the payment instrument currently used the most: euros, dollars, pounds, the rubles, and so on are FIAT currencies.
Technically, the cryptocurrency exchanges are comparable to FIAT money trading platforms. The presence of cryptocurrencies in these particular exchanges allows them to have their market and therefore their listing. Thanks to this type of market, it is, therefore, possible to study crypto-monetary exchanges, thus deducing from such transactions which cryptocurrencies can be of greater interest at a specific historical moment.
Obviously, in this article, we will not deal with trading, its pros and cons and the real and/or technical reason why a cryptocurrency will rise in value or fall. Many reasons influence the trading market of FIAT money, therefore there can be as many reasons that can affect the currency movements of the cryptocurrency.
What exchange offers
Surfing the web you can find a great variety of exchanges, many offer similar features and tools, others provide details. A sort of global ranking of the transactions on the market can be easily consulted at the following link. CoinMarketCap is a very well made website, a source of numbers that can be analyzed and evaluated independently by third party analysts.
Generally speaking, an exchange allows the user to perform some main actions:
• The user will register with the exchange service, filling out the standard KYC (Know Your Customer) with his/her data.
• Then you will be able to top up your account to independently purchase the desired cryptocurrency. The UX (User Experience) varies, but it is certainly a fundamental element of any exchange service. These will have as their primary objective to guarantee extreme ease of use which, combined with the security of the system, will allow the user to quickly carry out his/her actions (such as the purchase of the cryptocurrency).
• Various types of cryptocurrency purchases (such as Bitcoin or Ethereum) can be made in multiple ways, for example by bank transfer or credit card, in relation to the services chosen by the exchange and enabled on the platform.
• The most advanced exchange platforms (by now in large part) also allow the more experienced traders to trade, offering them tools for analyzing prices and entering/exiting the market, including commissions on transactions that can vary (from zero to go up).
• An essential part of the exchange is the wallet: many offer the management of the user’s wallet. Here the exchanges are divided: some hold the private keys directly on behalf of the users, others, instead, insert systems that allow the users to recover them in case of loss.
• An additional tool that you can see on some exchanges is the rechargeable credit card that allows you to take advantage of your cryptocurrencies in a given exchange service.
Features of an exchange
When a user is looking for an exchange or intends to evaluate one of interest, he must surely rely on key elements such as:
• Security is what the user searches. There are cases in which the safety of one or more exchanges has been subject to risk or violation. Exchange services with the highest security standards archive cryptocurrency funds “offline”: this is because “offline” they become inaccessible. Some exchanges also divide the funds into multiple wallets, managing backup copies.
• Furthermore, the most developed exchanges issue forms of insurance for customers on their funds: with this insurance, they guarantee the sums that users carry in their wallets. Obviously, they change from exchange to exchange: the vast majority who use it, for example, insert limitations (for example) in case of loss of personal funds due to their fault (example: password too little complex).
• For the reason described above, some exchanges include the now-famous 2FA, that is the two-factor authentication: this to enable the start of operations requested on the user’s account (for example the transfer of money).
• The various exchange platforms offer different services and tools, so it is more than reasonable that they also differ in prices, whether they are simple to manage or whether they come from various commissions; it is, therefore, plausible that there are both free usable exchanges and exchange commissions.
• Any promotions
• Often exchanges, especially to attract new users, start promotional campaigns, give bonuses to users who register and make a specific type of deposit.
• Tools and products
• Each exchange is created with integrated tools: they are generally instruments of custody and exchange of currency (e.g. wallet) or analysis of currency trends of cryptocurrency, where these represent the products offered by the exchange service itself. The cryptocurrency is seen here as a product because not all exchanges include all existing FIAT and/or cryptocurrency: it happens that the exchange service inserts only a small or large group of currencies.
Exchange as an intermediary
Since it is blockchain technology, it is clear that any user is freely able to make any transaction (whether of movable or immovable property, tangible or intangible) or cryptocurrency exchange in total autonomy, i.e. without the use of any exchange or other brokerage platforms. The blockchain was born, in fact, precisely for this reason: to decrease intermediation.
The exchange on the other hand, as an intermediary, is born precisely to facilitate the connection between the new blockchain world to the current fintech world, allowing even the common user to test its potential, starting from the simple management of a wallet or a currency exchange.
The exchanges that today generate higher volumes are private, centralized ones. If, on the one hand, they make large volumes of users and transactions, on the other they carry the risk of failure, as happened at Mt.Gox.
This is why over the years decentralized exchanges have begun to emerge, the so-called DEX.
They are decentralized because they are based on blockchains, mostly on Bitcoin and Ethereum.
The advantage that stands out in the use of DEXs is precisely the blockchain: the user never loses the ownership and control of his wallet. The latter is hooked, in this case, to the blockchain, so it is used to write every trade, purchase, sale, and so on. The essential features of the blockchain are therefore exploited here: the ledger, immutability and decentralization.
But not all that glitters is not gold; the cons of a DEX can be found in transaction costs for the operations, in addition to trading speeds that are clearly lower than the centralized exchanges, precisely because the blockchain used today in the DEX is not comparable in pace with the centralized exchanges, precisely because of the construction logics of the used blockchain.
Exchange: a few numbers
Going to look for some numbers generated by the exchanges services, it becomes quite interesting: CoinMarketCap allows us to have a graph available that makes it quite clear how extensive and complex the exchange of users and exchange volumes is.
In the above table, we see a cross-section of only 10 of the totality of the exchanges currently on the market. Only these 10 generate daily, weekly and monthly volumes that alone show how many users rely on exchange services.
This is why the massive money transfers in the crypto area, such as the last one of 94,000 Bitcoins (about 1 billion Dollars) that involved a particular recipient wallet, make a big sensation.
Let’s look at this graph extrapolated from BItinfocharts.
This transfer generated a lot of fanfare on twitter, involving analysts such as TokenAnalyst, Glassnode, CryptoHerpesCat who pointed out that much of the money came from Huobi Global, currently out of the top ten of the exchanges listed in ConMarketCap.
With this analysis, we have tried to understand how a centralized tool (which in some cases is trying to explore pure decentralization) has quickly attracted an increasing number of users who have approached the cryptocurrency and blockchain world (decentralized world).
This is certainly a positive side, as tools of this type allow users to begin to learn about the potential of the blockchain, starting to test the cryptocurrency transfers between wallet and wallet in an area that is initially more friendly to them, that is, a centralized environment that guarantees their higher speed.
They also allow institutions and large economic leaders (on the infrastructures of which today’s payment systems run) to study the number of users who are interested in this new world: how it moves, the amount of cryptocurrency moved, the familiarity with which he uses the blockchain tools.
All this, of course, without considering all the new tools that can be built with this technology. The numbers analyzed here show how this technology, appropriately conveyed, can create tools for use and consumption both by ordinary users and by more experienced users, both technically (programmers) and economically (fintech & big whales).