A Bitcoin exchange is an online platform or marketplace where traders are able to buy and sell Bitcoins using altcoins, alternative cryptocurrencies to Bitcoin, or real-world currency. Since Bitcoin is not an accepted legal tender like paper money, therefore, in general, users would have to purchase it on third party Bitcoin exchanges using traditional money.
For that reason, other than cost, features, and ease-of-use, trust and security play an important role and users commonly choose the most reputable exchanges to minimize risk. Some of the biggest and most popular exchanges today include Coinbase, Cex.io, Kraken, CoinMama, Bitfinex and a host of other exchanges.
The exchanges normally charge certain fees for their services, for example:
Exchange fees – Basic fees for exchange operations
Trade fees – This fee is charged when trade is made between currencies on the exchange
Deposit / Withdrawal fees – To deposit/withdraw funds from the exchange. Usually, it is cheaper to deposit than to withdraw funds.
Most Bitcoin exchanges do provide Bitcoin wallets for their users, but they may charge a fee for this service.
Although many exchanges act like virtual banks, Bitcoin holders are faced with the unmitigated risk of theft, fraud or hacking without the safety net of something like a depositor’s insurance to absorb the loss. Due to the surging price of Bitcoin and thus the amount of money involved, Bitcoin exchanges have become the latest prime target of cyber hackers looking for easy money.
A number of large Bitcoin exchanges have had to close down after being hacked and their wallets emptied, most recently Youbit, cryptocurrency exchange in South Korea that has filed for bankruptcy as a result. Users and Investors in cryptocurrencies therefore should be aware of the risks involved before committing to a Bitcoin exchange.
