For Buying and Selling Bitcoins, you can buy bitcoins from anyone who has them. Likewise, you can sell bitcoins to anyone who wants them. Fortunately, there are various places where you are likely to find a group of people willing to trade at competitive prices—exchanges.
Buying and Selling Bitcoins - Exchanges
Just like stock exchanges, Bitcoin or cryptocurrency exchanges are places (usually websites) that attract traders. However, you don’t buy bitcoins from the exchange itself. Just like a stock exchange, where you buy shares from another user of the exchange rather than from the exchange itself, a cryptocurrency exchange is a website that allows people to buy and sell between themselves. The exchange itself is just the location that brings together buyers and sellers, and people go there because they know they are likely to get the best prices there. In financial services jargon, the exchange is an order-matching engine.
It matches buyers and sellers. It also acts as the central clearing counterparty. All matched trades appear to be against the exchange rather than between the customers directly, providing anonymity for customers. Finally, the exchange is the cash and asset custodian. It controls customers’ fiat money in its bank account and cryptocurrencies in its wallet.
Buying and Selling Bitcoins - How Do Cryptocurrency Exchanges Work?
For Buying and Selling Bitcoins exchanges are based in different countries and support different fiat currencies and different cryptocurrencies. They all work roughly the same way using the same four steps:
- Create account
- Deposit
- Trade
- Withdraw
Buying and Selling Bitcoins - Create an Account
To use an exchange in Buying and Selling Bitcoins, just like a bank, you need to open an account. Exchanges are coming under increasing regulatory scrutiny due to the fact that they process large amounts of money. The top cryptocurrency exchanges match billions of dollars of buys and sell per day. Most legitimate exchanges follow a similar account opening procedure to banks, where new customers submit details and evidence of their identity, for example, passport and utility bills. The documentation needed may become more onerous in proportion to the value of fiat or cryptocurrencies you plan to transact, in a progressive risk-based approach. Exchanges are now big businesses and take these processes seriously.
Once the exchange is satisfied, your account is created. Then you can log in and the next step is to deposit.
In the next crypto tutorial session on Buying and Selling Bitcoins, we aim to discuss the transaction processes in Crypto Trading.
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