A cryptocurrency exchange or a digital foreign exchange (DCE) is a business which allows 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 being a matching platform, simply charges charges.
Concept – A digital foreign currency exchange can become a brick-and-mortar business or even a strictly web business. Being 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, digital currency exchanges operate away from Western countries in order to avoid regulation and prosecution. However, they actually do handle Western fiat currencies and maintain bank accounts in a number of countries to facilitate deposits in various national currencies. Exchanges may accept credit card payments, wire transfers or any other kinds of payment in return for digital currencies or cryptocurrencies. As of 2018, cryptocurrency and digital exchange regulations in numerous developed jurisdictions remains unclear as regulators are still considering how to deal with these types of businesses around but have not been tested for validity.
The exchanges can send cryptocurrency to your user’s personal cryptocurrency wallet. Some can convert digital currency balances into anonymous prepaid cards which can be used to withdraw funds from ATMs worldwide while other digital currencies are backed by real-world commodities such as gold.
The creators of digital currencies are often independent from the digital foreign currency exchange that facilitate trading inside the currency. In one kind of system, digital currency providers (DCP) are companies that keep and administer accounts for their clients, but generally usually do not issue digital currency to the people 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 some are legally independent businesses. The denomination of funds stored in DCP accounts may be of a real or fictitious currency.
Decentralized exchanges – Decentralized exchanges including Etherdelta, IDEX and HADAX do not store users’ funds on the exchange, but instead facilitate peer-to-peer cryptocurrency trading. Decentralized exchanges are resistant to security conditions that affect other exchanges, but as of mid 2018 have problems with 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 help offered as legally requiring an Australian Financial Services License, which the companies lacked.
In 2006, US-based digital 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 currency exchange and cash transmittal business” from their apartments, transmitting greater than $30 million to digital currency accounts. Customers provided limited identity documentation, and could 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.