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Significance of the cryptocurrency exchange

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03.10.2018
Significance of the cryptocurrency exchange

There are a number of components asides the conventional blockchain, that are pivotal to the smooth functioning and sustainability of cryptocurrencies. If there were no other facilitating features like the cryptocurrency exchange platforms, then digital currencies would have been enormously far away from achieving their fundamental objectives. The significance of cryptocurrency exchanges to this technology cannot be overemphasized, and it is reasonable to say that they have been a major determining factor to the success and achievements that have been recorded so far.

Consequently, every intending cryptocurrency user or investor, is expected to ideally understand the working methods of the digital currency exchange in general. After this, they may proceed to note the individual peculiarities of the different types that there are.

Functions and uses of the cryptocurrency exchange

It is important to explain the functions and uses of cryptocurrency exchanges, from the standpoint of the services they provide. An evaluation of the activities that can be carried out on any of this type of platform, gives an insight to the relevance of the innovation. Below are three of the most important use applications and functions of the cryptocurrency exchange:

1. Creates a viable atmosphere for cryptocurrency listing and overall growth of crypto economy

One of the most prominent ways by which bitcoin and all of the other altcoins have been able to achieve an increased community member base, is due to the fact that they have been listed on different trade exchange platform. Cryptocurrency listing and the implementation of trade pairs allow users gain access to easy exchange of fiat currencies for any of their desired tokens, as well as an exchange of one cryptocurrency for the other. By this, every listed digital currency can easily be acquired and disposed off, as required. This would have been considerably difficult if there were no such facilitating medium.

Hence, the activity of cryptocurrency exchanges has greatly influenced the circulation and ownership exchange of the digital tools, between users.

The relevance of this is even more pronounced, since it affords cryptocurrency users an opportunity to buy cryptocurrency, from their different locations around the world.

2. Enables users to effectively trade and leverage on cryptocurrency price tendencies

Investors and stakeholders on the digital currency scene, can always observe the cryptocurrency listing, whose knowledge could be used in making substantial profits. The idea is to leverage on price differences and volatility tendencies of the markets- which is ever changing. Cryptocurrency exchange provides real time information and market statistical trends, which the user can immediately take action upon- by either buying or selling any particular crypto. The action to be taken would depend on the one that favors profit actualization per time. Usually, traders are more likely to buy when the markets are low and at support, and likely to sell when they are high at resistance.

The cryptocurrency exchange facilitates immediate buying and selling actions, when they are required. Thus, they can individually be referred to as the players and controllers of the cryptocurrency market.

3. Cryptocurrency exchanges provide wallet storage facilities

In cryptocurrency use, one of the foremost important requirements for the user, is the possession of a compatible storage wallet for all the different digital currencies that they have. Without this requirement, they can almost not use or trade in cryptocurrencies.

Cryptocurrency exchanges fundamentally provide this important services for their users, as every registered account holders on most of the exchanges, are allowed access to a free wallet. Consequently, users can store up their coins and tokens there, while making use of them off the wallet when they need to. Crypto wallet facilities provided by exchanges are known as hot wallet, since they are usually connected and hosted online.

However, although cryptocurrency exchange wallets seems fair enough, it is not advisable to have so much crypto funds left on the accounts. This is because they are liable to theft risks from cryptocurrency thieves and hackers, who would make away with the funds if they’re able to gain access. But then, they’re still a great option if you’re leaving only a limited sum, in them.

What to look out for when choosing an exchange

There are a reasonable number of cryptocurrency exchanges, with different features and service conditions. However, there are the essential characteristics to look out for in an exchange before adopting its services for your use. This is important, if the cryptocurrency users expect to get optimum results from for their activities. Some of the things to consider includes the following:

1. Security level of the cryptocurrency exchange

Since user and investors’ funds are essentially lost if there are security bridges, it is important to find out the security level of the cryptocurrency exchange you’re intending to adopt for use. There have been past unpalatable incidences of exchange hacking, where investors’ funds running into millions of dollars have been stolen and were never recovered. A typical example is the popular Mt Gox bitcoin exchange which was hacked in 2014, and where about 850,000 bitcoins were stolen.

Before settling down for an exchange, check the security protocol that has been put in place, and make an evaluation of how effective it could be.

2. Transaction fee rates and charges

No one ideally wants to stick with having to pay high fees for a service that could be gotten for less, elsewhere. Transaction fees and charges implemented by cryptocurrency exchanges is not unified, hence the rates may differ substantially from one exchange to the other.

Always check for information indicating transaction charge rates, and see if they correspond with what you can stay with, in relation to the services provided by the platform. There are a good number of options to choose from, so don’t be too quick to go for just any option.

3. Cryptocurrency listing and trade pairs

It is important to know what type of cryptocurrency trade pairs, are being supported on an exchange before settling down to it. This is essential and peculiar for each individual, depending on their choice of digital currencies. While virtually all exchanges would support bitcoin use, not all would support use of the other altcoins. Thus, while one exchange may allow account and trade activities for dogecoin, others may not have made provisions for it. Also, one exchange may allow users to trade a cryptocurrency for another- such as electroneum for bitcoin (and vice versa), while another exchange may not.

Thus, depending on the intended activities of the user, a choice of the suitable cryptocurrency exchange must be made based on this condition.

On the overall, cryptocurrency exchanges would continue to show significance for digital currency activities. However, since the cryptocurrency scene is continually evolving to provide better features and solutions, stakeholders may also expect to see same being implemented on exchange platforms and the services they offer.

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