If we talk about Bitcoin, Ethereum and really, most of the cryptocurrencies that exist today, being so popular, every day more and more people want to enter the world of cryptocurrencies. Being the most frequently asked question, how can I buy Bitcoins? How can I buy cryptocurrencies? This procedure is done through a cryptocurrency exchange.
There are many things and concepts that you must understand to comprehend what exactly is a cryptocurrency exchange (and you better learn it before buying cryptocurrencies), we will try to explain it to you in a simple and easy to understand way.
What is a cryptocurrency exchange?
It really isn’t that complicated. Cryptocurrency exchanges are websites or softwares where you can buy, sell or exchange cryptocurrencies for other digital currencies, or for traditional currencies (such as euros, dollars) called in the world of cryptocurrencies, FIAT money.
Nowadays it is almost standard for exchanges to require personal documents and personal data from you. Whereas in the early days of crypto, this was not necessary. Every day there are fewer exchanges that do not ask for this type of sensitive data. Many people do not agree with this since one of the initial and main characteristics of the cryptocurrencies was their anonymity. Today one could say that it is about to disappear.
Let’s continue: an exchange is where cryptocurrency buyers and sellers conduct their business. Let’s say for example that a Bitcoin seller deposits Bitcoin through their Bitcoin wallet address, the vast majority of exchanges will provide you with your own personal address, meaning that they will provide you with a cryptocurrency wallet, in this case, a Bitcoin wallet. This Bitcoin seller will then be able to use their Bitcoin money to buy, for example, dollars. Or if you are a buyer, you will be able to deposit dollars to buy Bitcoin.
Exchanges are the only places where you can buy cryptocurrencies with FIAT money, that is to say, with dollars or euros or yen, through a bank transfer, or through your credit card for example. Once you have, for example, Bitcoin, you can move it to another Bitcoin wallet, exchange it for another cryptocurrency or whatever you want to do. To do this type of transactions (from cryptocurrency to FIAT money or from FIAT money to cryptocurrency) you must first have an account in a cryptocurrency exchange, in order to buy or receive your cryptocurrencies.
One way to do it without an exchange is by opening a cryptocurrency wallet, and someone who owns cryptocurrencies, with your wallet address, can send you cryptocurrencies. In this case you will not need to buy cryptocurrencies, since you will not be at any time exchanging FIAT money for cryptocurrency.
What is the difference between an exchange and a cryptocurrency wallet?
The difference between an exchange and a crypto wallet is that with the crypto wallet you can only send, exchange between cryptocurrencies or receive cryptocurrencies, but you will not be able to buy with FIAT money. On cryptocurrency exchanges you can buy cryptocurrencies with FIAT money.
This is confusing since a large part of the exchanges will also give you the option of having a cryptocurrency wallet with the same company.
Some practical examples: If your idea is to buy cryptocurrency with FIAT money, you must create an account in an exchange, since you will be acquiring cryptocurrency with FIAT money, you are exchanging FIAT money for cryptocurrencies. If you only want someone to send you cryptocurrencies, for example Bitcoin, without having to buy with FIAT money, it will be enough to have a cryptocurrency wallet. You will give the other person your cryptocurrency wallet address, in this case of your Bitcoin wallet, to the other person, and with your address, this other person will be able to send you as many Bitcoins as they have available in their wallet.
Each cryptocurrency wallet is different depending on the cryptocurrency, that is, if you have, for example, Bitcoin and Ethereum, you will have a Bitcoin wallet and an Ethereum wallet, that is, 2 different wallets. Each of them with a different address. Each address in each wallet is also unique.
The address of your wallet is the one you will give to receive cryptocurrencies. At the same time, if you have cryptocurrencies and want to send someone, the other person will give you the the other person will give you his wallet address, and you, with his address, can send the other person, as many cryptocurrencies as you want and as you have available.
How to choose a cryptocurrency exchange?
Unfortunately there are a lot of cryptocurrency exchanges that turn out to be a scam. This is not to say that there are not many very good ones, there are, but many are bad exchanges and do not have good intentions towards their clients. So, as an investor or buyer, you have some tasks to do to choose a good exchange, here are some tips that we recommend you take into account when choosing an exchange:
– The reputation of the exchange
– Fees: each exchange stipulates its own charges to buy and sell, some charge high fees compared to other exchanges
– Payment methods
– Withdrawal methods
– The country where you live: many countries unfortunately have many restrictions regarding cryptocurrencies
– Requirements to buy and sell: as we mentioned above, it is almost standard that they ask for documentation and private data
– Exchange rate: many times for converting, say, Bitcoin to Ethereum you can have a fee, keep that in mind
And what do you think about cryptocurrency exchanges?