Cryptocurrency is a revolutionary new way of transaction in the world. Unlike traditional fiat currencies like INR or $, cryptocurrencies do not get issued by any nation. Instead, it is a virtual or digital currency, where encryption done by software programs protects the transactions. Furthermore, through blockchain technology, digital ledgers of the transactions get distributed to various parties of the transactions, making it more challenging to manipulate and easier to enforce.
Since their inception, cryptocurrencies are witnessing massive growth in usage as more and more business houses started using cryptocurrencies because of their reliability, efficiency, and security. But as many new cryptocurrencies are getting introduced, the competition between exchanges is also getting steeper.
What are cryptocurrency exchanges and their types?
Cryptocurrency exchanges are the businesses that primarily offer their customers to trade cryptocurrencies to exchange traditional fiat currencies or other cryptocurrencies.
There are four types of cryptocurrency exchanges:
- Centralized exchange: In centralized exchanges, a trusted third party helps to conduct and complete the transaction. Centralized exchanges are the most popular and trusted means of trading cryptocurrencies.
- Decentralized exchange: These types of trades conduct a transaction in an automated process without involving a third party, thereby can provide more anonymity to the parties of the transaction.
However, a decentralized exchange is established by creating proxy tokens or assets or decentralized multi-signature escrow systems to provide transaction security.
- P2P exchange (peer-to-peer exchange): These exchanges provide a platform where parties of the transaction can exchange cryptocurrency on their terms without keeping any asset in the custody of the exchange. These types of businesses generally don’t process any fiat money.
- Hybrid Exchange: Both centralized and decentralized exchanges have their own merits and shortcomings. To get the best of both worlds, exchanges have evolved by adopting usability and liquidity of centralized platforms and anonymity and security of decentralized media.
Features of cryptocurrency exchange:
- Security: Since through blockchain, the ledgers get distributed in various systems, transactions get secure.
- Ease of use: since it operates online with continuous development in cryptography, cryptocurrency exchanges developed very easy-to-use interfaces for their customers.
- Customer support: 24*7 customer support gets provided with cryptocurrency to facilitate any users.
- Stop-loss function: The value of cryptocurrencies is very volatile, so the exchanges provide stop-loss functions, so the users have control over the importance of their holdings.
Benefits of cryptocurrency exchanges:
- Minimization of hacking risk: assets can only exchange between buyers and sellers, so the transfer of assets to someone else is significantly less possible.
- Anonymity: party’s anonymity remains preserved as no KYC is required to get filled.
- Prevention of market manipulation: Since P2p exchanges are available, buyers and sellers can transact on their terms independent of market conditions.
How to create a cryptocurrency exchange:
To create a cryptocurrency exchange an organization needs to provide the following to their customers:
- Designs: To make a software algorithm to conduct and provide secure transactions, it should be designed prudently.
- Client-side development: The software developed to manage the client’s interaction towards the transaction.
- Application program interface: it is the system to maintain the backend records of the transactions.
- Blockchains: Blockchains need to develop to process and store data of a transaction.
- Testing: Testing is necessary so that software functions correctly.
- Security: Since financial transactions carry compassionate data about users, the security of such data is to be maintained.
Cryptocurrency is a rising way of transaction. Since more and more business establishments are starting using them, they remain very volatile in their value. Cryptocurrency exchanges provide a secure platform to the users.