A cryptocurrency exchange or perhaps a digital currency exchange (DCE) is a business that enables people to trade cryptocurrencies or digital currencies for other assets, including conventional fiat money or any other digital currencies. A cryptocurrency exchange can be a market maker that typically takes the bid-ask spreads as a transaction commission for is service or, as a matching platform, simply charges fees.
Concept – An electronic currency exchange can be a brick-and-mortar business or a strictly web business. As a brick-and-mortar business, it exchanges traditional payment methods and digital currencies. As an online business, it exchanges electronically transferred money and digital currencies. Often, the digital currency exchanges operate outside the Western countries to prevent regulation and prosecution. However, they are doing handle Western fiat currencies and maintain bank accounts in several countries to facilitate deposits in different national currencies. Exchanges may accept credit card payments, wire transfers or other kinds of payment to acquire digital currencies or cryptocurrencies. As of 2018, cryptocurrency and digital exchange regulations in numerous developed jurisdictions remains unclear as regulators remain considering how to approach these sorts of businesses in existence but have not been tested for validity.
The exchanges can send cryptocurrency to a user’s personal cryptocurrency wallet. Some can convert digital currency balances into anonymous prepaid cards which can be employed to withdraw funds from ATMs worldwide while other digital currencies are backed by real-world commodities including gold.
The creators of digital currencies tend to be independent in the digital currency exchange that facilitate trading inside the currency. In one type of system, digital currency providers (DCP) are companies that keep and administer makes up about their clients, but generally usually do not issue digital currency to those customers directly. Customers buy or sell digital currency from digital currency exchanges, who transfer digital currency into or from the customer’s DCP account. Some exchanges are subsidiaries of DCP, but many are legally independent businesses. The denomination of funds stored in DCP accounts may be of the real or fictitious currency.
Decentralized exchanges – Decentralized exchanges like Etherdelta, IDEX and HADAX usually do not store users’ funds on the exchange, but rather facilitate peer-to-peer cryptocurrency trading. Decentralized exchanges are resistant against security conditions that affect other exchanges, but as of mid 2018 are afflicted by low trading volumes
In 2004 three Australian-based digital foreign currency exchange businesses voluntarily shut down following an investigation through the Australian Securities and Investments Commission (ASIC). The ASIC viewed the services offered as legally requiring an Australian Financial Services License, that the companies lacked.
In 2006, US-based digital foreign currency exchange business GoldAge Inc., a brand new York state business, was shut down through the US Secret Service after operating since 2002. Business operators Arthur Budovsky and Vladimir Kats were indicted “on charges of operating an illegal digital foreign exchange and money transmittal business” using their apartments, transmitting more than $30 million to digital currency accounts. Customers provided limited identity documentation, and may transfer funds to anyone worldwide, btzfya fees sometimes exceeding $100,000. Budovsky and Kats were sentenced in 2007 to five years in prison “for engaging in the industry of transmitting money with no license, a felony violation of state banking law”, ultimately receiving sentences of five years probation.