What is a cryptocurrency exchange in the first place? What are the differences between an exchange and a retail dealer/onsite seller, and how do partnered/registered status and Financial Services Agency authorization differ?
In December 2017, a cryptocurrency that rapidly spread its name to the world.
Young people with no investment experience, having heard of the surge in BTC, began opening accounts at “cryptocurrency exchanges” all at once.
They are the so-called “Degawa group.”
Among them were people who, not knowing the difference between a cryptocurrency exchange and a trading desk, even opened accounts.
However, to purchase cryptocurrency, you must create an account at a cryptocurrency exchange.
Then, what exactly is a cryptocurrency exchange? What is the difference between a trading desk and an exchange?
Or, what is the difference between a deemed operator and a cryptocurrency exchange operator?
Some people might be thinking this.
In this article, we will delve into what a cryptocurrency exchange is in the first place, so
whether you already know or don’t know, please read to the end.
What is a cryptocurrency exchange in the first place?
In short, a cryptocurrency exchange is a bank that can exchange digital currencies, which have no physical form like banknotes or coins.bank
For example, you deposit money (banknotes) at a bank and transfer or withdraw money, right?
Whether the bank actually does it or not, basically you can withdraw banknotes from the bank anytime.
In other words, a cryptocurrency exchange is a gateway you use when you want to buy cryptocurrency (the bank’s equivalent of banknotes).
Specifically, it is a business that receives orders from users to buy or sell various cryptocurrencies like Bitcoin and manages the purchased cryptocurrencies in accounts.
Indeed, an exchange can be said to be the “bank” of cryptocurrency.
And, exchanges do not have actual physical storefronts; users access the exchange’s site via the Internet and place cryptocurrency trading orders.
Next, let’s look at the history of the birth of cryptocurrency exchanges.
The history of the birth of cryptocurrency exchanges
The catalyst for Bitcoin’s creation was trading with pizza, but just one year after Bitcoin’s birth in 2009, Bitcoin exchanges appeared in 2010.
The world’s first exchange, a Bitcoin exchange, opened on February 6, 2010 in a building next to the New York Stock Exchange for about $50,000 (about 5.5 million yen).
The founder of that exchange was Nick Ponos, who named the world’s first cryptocurrency exchange “Bitcoin Center” and opened it.
Subsequently, due to the need for exchange with fiat currency, “BitInstant” was established by Charlie Shrem, one of the founders of the Bitcoin Foundation.
BitInstant had the role of exchanging fiat currency for Bitcoin, but it disappeared after January 2014.
However, since BitInstant’s birth, exchanges have continued to be established rapidly, and now the exact number of exchanges is uncountable (※).
There are about 20 cryptocurrency exchanges in Japan, but globally there may still be relatively few.
Roles of cryptocurrency exchanges
Now that we’ve introduced the roles and history of cryptocurrency exchanges, the main tasks they perform are threefold:
- Selling cryptocurrencies (trading desk)
- Mediating cryptocurrency trades (exchange)
- Managing users’ accounts
Regarding 1 and 2, I’ll introduce them later under “Differences between the trading desk and the exchange.”
User account management
Both trading desks and exchanges store the cryptocurrencies purchased by customers in accounts much like a bank deposit accountand manage customer accounts on the exchange.
Some exchanges offer services like recurring purchases of cryptocurrencies or lending customers’ cryptocurrencies and returning them with a certain percentage markup on a set date.
Thus, account management for customers is also the exchange’s job.
However!
Unfortunately, most current cryptocurrency exchanges have fallen from trust due to security concerns.
Therefore, investors today think of managing their assets themselves with hardware wallets or mobile wallets like Gincoand take responsibility for their own assets.
However, the place where virtual currencies are traded and managed in a virtual space is precisely a “cryptocurrency exchange.”
Quite literally, isn’t it? lol
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