A Complete Guide on How Does Cryptocurrency Exchange Function?

Hemendra Singh
Hemendra Singh, Managing Director at The NineHertz
Published on Apr 01, 2019 in Blockchain Developers Resources
A Complete Guide on How Does Cryptocurrency Exchange Function?

From barter to banknotes, money has gone through a series of dynamic changes and we all are well-versed about them. But regardless of shape, size or material, money itself holds no significance physical value. However, money gets its value because everyone accepts it as a medium of exchange.

Recently, digital currency exchange is becoming popular among millennials. With the popularity of Bitcoin (a form of cryptocurrency) people started getting attracted towards electronic cash. However, Bitcoin has faced many criticisms for being an economic bubble, illegal transactions, etc. But there are many advantages of cryptocurrency exchange if utilized and drive through proper source and channel.

Before getting any deep into cryptocurrency exchange working, let us understand the concept of cryptocurrency. In this article we are going to cover the following topics:

  • What is a cryptocurrency exchange?
  • Types of cryptocurrency exchange.
  • How does cryptocurrency exchange work?
  • What security measures to know before joining an exchange?

What is a cryptocurrency exchange?

A cryptocurrency exchange is a business or website or online platform that allows to buy or sell digital currency for other assets or available currencies. These exchanges take place over the best cryptocurrency exchange software platforms specifically designed for digital currency exchange.

A user can buy or sell or send cryptocurrency to a user’s cryptocurrency wallet. Later, this digital currency can be converted into unspecified cards through which users can withdraw money from ATMs.

Though many developed countries are still pondering over how to deal with digital currencies as there is still no valid foundation for deciding the authenticity of digital currencies.

Types of cryptocurrency Exchange Platforms

1. Decentralized cryptocurrency Exchange

It operates without a central authority. Decentralized exchange permits peer-to-peer exchange through a layer of smart and secure layers. Cryptocurrency exchanges like IDEX, Etherdelta, etc. are less prone to hacks and offers a more secure medium of exchange.

A Complete Guide on How Does Cryptocurrency Exchange Function?

2. Centralized cryptocurrency Exchange

It is a cryptocurrency trading software platform that enables the users to perform trading of cryptocurrency with fiat money or other cryptocurrencies. The exchange has the 100% control over the trading and thus, put a limit to fund transfers. Centralized cryptocurrency exchange offers high liquidity, advanced features, and ease of usage.

How does cryptocurrency exchange work?

Whether it is a decentralized exchange or centralized exchange, the cryptocurrency exchange work in a similar way. However, there is a difference in how profit is generated in the process of exchange.

Cryptocurrency trading software act as a common channel between buyers and sellers. Let’s take a popular cryptocurrency- Bitcoin to understand the working.

Suppose, you have a bitcoin and you are trying to sell it for a specific amount and terms of conditions. You will place a request which will be saved in an order book. People who are interested in buying the Bitcoins will visit the order list where different entries are submitted by the different sellers. When the exchange matches the buyer and seller orders according to the preferred price and process, the trade takes place.

To sum up the process of cryptocurrency exchange:

  • User register with a bitcoin trading software or any other exchange platform. Once registered and verified, user deposit a significant amount of either digital currency or fiat money.
  • The cryptocurrency trading software matches the selling and buying order by biding or directly negotiating (usually in decentralized exchange).

Usually, the seller set a minimum price for selling the virtual currency. Similarly, the buyer set a maximum budget for buying the currency. If the order matches, then the exchange pulls the deal.

What security measures to know before joining an exchange?

“Unawareness” leads to trouble. In the market, there are a number of authentic as well as fake virtual currency platforms. Thus, it is important to do research before investing in a cryptocurrency exchange.

Brand Name/ Popularity:

Generally, whenever we invest in any policy, we read the terms and conditions and takes feedback from the existing investors or beneficiaries. Similarly, the best way to know about any cryptocurrency exchange software is to analyze the reviews from the users.

Moreover, there are many forums available where you can ask your queries related to crypto exchange. Some of the forum sites are BitcoinTalk or Reddit.

Authentic Payment Methods:

Remember, if your exchange software offers compatibility with several payment gateways, then it will be more convenient to use by the users. However, payment through credit or debit cards will reveal your true identity and can be charged for higher transaction rates.

Thus, if you are looking for developing an exchange platform like bitcoin exchange platform software, then choose a cryptocurrency exchange development company that has a skilled team of developers. A team who is proficient in incorporating multiple payment channels in a single platform.


The fees that are attached to the transactions, buying, withdrawing, or selling must be mentioned on the exchange website.

Exchange Rate:

The exchange rate varies depending on the exchange platform. For every exchange rates can fluctuate instantly. Have a look at the current virtual coin ranking.

A Complete Guide on How Does Cryptocurrency Exchange Function?

Authentication Requirements:

To avoid any conflicts or scams, some of the Bitcoin trading platforms available in the USA and UK require ID verification for registering to the platforms. Identity verification reduces the chances of scam or money laundering.

Pros & Cons of Cryptocurrency Exchange

In the last few years, cryptocurrency exchange platforms have witnessed a huge backlash from the people and the government. Not able to justify the government norms, has pointed out many objections on its existence and authentication. However, still, there is a hope of light that it will be the future currency and most of the industries will accept it a medium of trade.

Pros of Cryptocurrency Exchange

  • A vast variety of Exchange Platform.
  • Decentralized exchange offers more privacy.
  • Provides liquidity for making trading possible.

Cons of Cryptocurrency Exchange

  • Vulnerable to hackers.
  • The exchange rates are hikes or drops instantly.
  • Longer trade time, thus, complex process.

Final Thought

There is no doubt that the cryptocurrency holds great potential to become the driving force in the future and might replace the fiat money. But it will take time and efforts as there are many security issues with the current cryptocurrency exchange. And requires a fix or more stable foundation for making it easier for regulatory systems to make regulations to control the illegal or misuse of the cryptocurrency exchange software.

However, we cannot deny the popularity of cryptocurrency especially, Bitcoin, Ethereum, Litecoin, etc. among the business community. Many entrepreneurs and SMEs are looking for developing a cost-effective cryptocurrency trading platform and thus, opting for cryptocurrency trading script. Ready-To-Go scripts require less time to develop and are cost-effective.

But, if you are looking for a customize cryptocurrency solution then it is better to hire a cryptocurrency exchange development team.

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About the author
Hemendra SinghManaging Director at The NineHertz

Hemendra Singh is Managing Director and co-founder of The NineHertz, a Mobile App Development Company. Hemendra has a keen interest in the latest trends and technologies that are emerging in different domains. Being an entrepreneur in the field of IT...

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