Digital currency Bitcoin (BTC) has more than quadrupled in value since the beginning of the coronavirus pandemic. And in spite of the shocking news by Elon Musk about Tesla no longer accepting BTC payments, the digital asset continues to thrive.
Investors, driven by the gains and traction they’ve seen to date and news that BTC will run out by 2040, are hungry to get in on the action.
Where do you go to buy and sell cryptocurrencies?
Enter cryptocurrency exchanges.
What is a cryptocurrency exchange?
A cryptocurrency exchange, also known as a digital currency exchange (DCE) is an online platform (sometimes an actual brick-and-mortar building) where traders can exchange one cryptocurrency for another or for a fiat currency (any recognized legal tender e.g. US dollar, British pound, the euro, the Chinese yen, etc).
Here is everything you need to know about cryptocurrency exchanges:
The rise in crypto exchanges we see can be attributed to three major issues.
1. Greater interest by the public to trade digital currencies
A report published by the Cambridge Centre for Alternative Finance in 2019 showed that there were 139 million cryptocurrency accounts.
Today, there are well over 172 million active BTC cryptocurrency users alone — a testament to the increasing popularity and interest the public has in trading digital currencies.
This interest by the public has a correlating effect in the rise in crypto exchanges because you cannot trade crypto except on a designated crypto exchange.
2. Wider acceptance of digital currencies as alternative payment sources
What do the following major companies all have in common?
· Yum Brands (which owns KFC, Taco Bell, Pizza Hut), and
· Restaurant Brands International (which operates Burger King, Popeyes, and Tim Horton)
They are among the biggest enterprises that accept digital currency as a form of payment.
This widespread acceptance of digital assets as forms of payment has invariably promulgated the rise in crypto exchanges.
And here is yet another cause for this rise.
3. The increasing need for privacy when investing
One of the best attributes of blockchain technology is the ability to trade digital assets anonymously.
This feature has lent itself well to traders who don’t wish to reveal, authenticate, or verify their identities when they trade online.
The decentralized nature of several crypto exchanges means investors can buy and sell cryptocurrencies without regulation and fear of being monitored.
On the dark side, this feature has also been employed by hackers to elicit payment in ransomware attacks without fear of being tracked.
The future of cryptocurrency exchanges
Discussing the future of cryptocurrencies, Stanford Law School professor Joseph A. Grundfest argued that there is still a lot of uncertainty about this digital asset class. Where proponents see nothing but potential, critics have reason to be wary of the risks.
In his closing remarks, Grundfest mentioned that it would not be prudent to completely dismiss crypto altogether because the technology that powers it is extremely viable.
So, only time will tell what the outcome of crypto will be. And in the meantime, crypto exchanges will continue to play a pivotal role for both buyers and sellers alike.
To read more about what’s happening in the world of digital assets, be sure to check out my blog The Rapid Rise of Cryptocurrency and What It Means for Traditional Investing.