Exchanges
Show next

What exactly is a Bitcoin exchange?

They’re also called “Exchanges.” They can also be compared to stock exchanges. They are platforms where buyers and sellers of Bitcoin can meet and trade with each other. Unlike a stock exchange, for example the Frankfurt Stock Exchange, they are not a physical place.

In the early days of crypto currencies, Bitcoin was exchanged through forums or other networks where people traded directly with each other. Today, most people prefer the stock exchanges. Not only do the platforms offer more security, they also automate processes and help to find exchange partners faster. On the stock exchanges an enormous trading volume is generated every day. Therefore their data is used to calculate the price of Bitcoin and other crypto currencies.

What are crypto currencies, anyway?

In our comprehensive article about crypto currencies you will learn what crypto currencies are and what different types are available.

Besides individual differences, such as the fees, the crypto currencies offered, which fiat currencies are accepted, there are a few significant differences that determine the way in which you trade digital currencies on the platform:

Stock Exchange

Stock exchanges usually focus on trading various crypto currencies, comparable to the stock exchange. In the meantime, however, some providers also offer buying and selling Bitcoin and Co. with fiat currencies.

Peer-to-peer stock exchange

This refers to websites that primarily provide a platform for buyers and sellers to trade crypto currencies with each other. The website only provides the platform and helps with matchmaking. Buyers and sellers must agree on the price for buying and selling themselves. The exchange charges a fee for providing the platform.

Broker

This is a platform where the buyer or seller deals directly with the operator of the site itself. Trading takes place at a price previously set by the platform, which is based on current prices. There is also a fee here.

Decentralized Exchange

As the name suggests, they are all about decentralization. They do not keep the customers’ money on one platform, but enable decentralized peer-to-peer transactions directly between the users, just like crypto currencies.

How does a stock exchange work for Bitcoin?

The details may differ depending on the exchange. But the first step is to register. While the registration itself is usually very simple – an e-mail address or mobile phone number is often sufficient for confirmation – the verification of the account is often a bit more complicated. Verification is all about identifying yourself as a real person. This is done by sending a copy of your passport, proof of residence or a statement of account. The platforms want to make it more difficult for criminals and also comply with the guidelines of the supervisory authorities. These are “anti-money-laundering” (AML) and “know-your-customer” (KYC) guidelines. Even though the process may be cumbersome, it increases the seriousness of the stock market.

The next step is to deposit money on the platform. Either the fiat currency from the bank account or the crypto currency from the wallet. Only when there is money on the deposit can trading be done. Then requests and orders can be placed. The stock exchange looks for suitable partners and initiates trading. If a transaction comes about, a fee is deducted. This also includes the “Miner’s Fee”. This is the fee that the block chain of the respective crypto currency (e.g. Bitcoin) charges for the transaction.

Blockchain simply explained

In our comprehensive article about Blockchain you will learn in a simple and understandable way what a Blockchain is and how it works.

In this case, algorithms and bots ensure that the trading partners find each other and a trade is made. They match requests and offers with each other and carry out the transactions between the two depots by themselves.

Are Bitcoin exchanges secure?

Every now and then, news about hacks of Bitcoin exchanges shakes the foundations and calls into question the seriousness of the operators. In fact, hackers are constantly trying to gain access to the many exchanges and steal the money stored on them. The stealing of crypto currencies is becoming more and more the focus of hackers.

However, this is not because the Bitcoin exchanges are so easy to hack. There is only much more to be gained with a successful attack. Nevertheless, the exchanges are not fundamentally dangerous. There are large crypto exchanges that could never be cracked. The operators make every effort to protect the accounts of their users and to close the security holes as quickly as possible in case of an attack.

As an individual, there is something basic you can do to protect yourself: Get your own wallet like the Ledger Nano S (field report) to keep crypto currencies like Bitcoin safe there. The security of your own wallet is not automatically higher than that of the stock exchange. That depends entirely on the selected wallet. However, a single person is a far less lucrative target than a whole exchange with thousands of users. Crypto currencies with which you do not want to trade in the foreseeable future should rather be removed from the platform and stored on your own wallet.

What do I need to consider when buying Bitcoin?

Apart from taking your own Bitcoins off the Crypto Exchange for security reasons (for larger investments), there are a few things to consider:

Fees

The fees can vary greatly. A fee of 1% is already considered quite high, most fees are lower. The “makers”, i.e. those who place offers to sell on the stock exchange, often pay less fees because they provide liquidity. In addition, fees can be charged for withdrawing funds. Here, one must be careful not to fall for hidden costs.

Crypto Currencies

Not only which crypto currencies are offered can be important, but also the trading pairs. Sometimes certain crypto currencies can only be exchanged for Bitcoin, Ethereum or Tether. On not all exchanges it is possible to buy a crypto currency with Euro or Dollar.

Regulations

Stock exchanges that are subject to the regulations of supervisory authorities are often reputable and trustworthy. This is not to say that stock exchanges that are not supervised by a regulatory body are automatically bad. Exchanges that only allow the exchange of crypto-to-crypto are often not supervised by any regulator, as there is no fiat money involved.

Deposit options

If you want to deposit with Euro, Dollar or other fiat currencies, then you have to pay attention to which payment methods are accepted. German stock exchanges often accept bank transfers and payment service providers that are common in Germany.

Experience

Inform yourself calmly on the Internet about the experiences that other users have already made with a platform. Have credit balances suddenly disappeared? Has it been hacked often? What about support?

Taxes

The trade of crypto currencies such as Bitcoin is taxable under certain conditions. In our article on taxes and crypto currencies you will find everything you need to know about this.

Buy instructions for Bitcoin

The editors recommend, among others, the Coinbase stock exchange to buy and sell Bitcoin. Coinbase offers a good selection of different crypto currencies, but is especially characterized by simple operation, great usability and seriousness. To buy Bitcoin and Co. is very easy here.

Step 1: Register with Coinbase Exchange

Enter your e-mail address and click on “Get started”. Now fill out the form carefully with your data and assign a secure password. After a few steps you will receive a confirmation e-mail and the stock exchange account can be used.

Step 2: Proof of identity

In order to prevent fraud, identity theft and money laundering, all crypto exchanges require you to prove your identity. This usually requires uploading photos of the identity card. Please pay attention to the specific instructions of Coinbase.

Step 3: Link account

In order to top up your Euro balance at Coinbase you must now deposit your credit card or bank account. Here too there may be a further verification process to ensure security. As soon as the steps are completed you can top up your Coinbase account with Euro to buy Bitcoin and other crypto currencies.