Trading structures such as exchanges have been part of financial structures for centuries and support traditional financial products. With the arrival of cryptocurrencies traditional fiat-exchanges are under tremendous pressure.

The question is not about the survival of traditional exchanges, since cryptocurrencies are yet to reach critical mass adoption, but due to issues in converting government-backed currencies for cryptocurrency.

Base-currencies as Fiat-converters

At the outset, it has to be said that cryptocurrencies number nearly 1,600 across market regions. The unusual numbers of cryptos thus complicate exchange mechanisms. Hence, there are only a few fiat-exchanges which allow paper currency to be converted into “base currency” or crypto-based currencies such as Ether, Bitcoin or Litecoin.

The result of this limited conversion is that not all coins can be directly purchased at these exchanges and the US Dollar can be used only to purchase other coins by using the base currencies only.

Hence, exchanges find it easy to convert USD or any other fiat-currency into a base currency such as bitcoin (BTC), Ether (ETC) and Litecoin (LTC) and based on them smaller value cryptos.

Crypto Exchange Types

Cryptocurrency exchanges on the other hand have no issues with exchanging one cryptocurrency with another, or to buy/sell cryptos of all types, or conversion, exchange of one type of fiat into another cryptocurrency.

These can be classified as Centralized Cryptocurrency Exchanges ( CEX) such as Coinbase, Binance; Decentralized Cryptocurrency Exchanges ( DEX) such as Stellar DEX, Waves DEX; and Hybrid exchanges (HEX) such as Qurrex  which combine CEX and DEX.

Given these complexities exchanges such as Coinbase, Gemini, Kraken, Robinhood have become very popular because they allow investors to hold and trade in multiple coins – bitcoin, Litecoin, Bitcoin Cash, Ethereum. However, they also offer investors the opportunity to purchase base currency and use them to buy altcoins.

Thus, finding the value of Altcoin using fiat-currencies such as USD does become a problem for investors. Hence, a convenient method is to opt for ‘trading pairs’ such as ETH to BTC. However, governments levy taxes on such paired-trading.  Many of the exchanges are also adopting self-regulatory mechanisms.

The post Things you need to know about Crypto exchanges, Fiat exchanges and More appeared first on ZyCrypto.

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