A cryptocurrency exchange or a digital foreign exchange (DCE) is a business which allows customers to trade cryptocurrencies or digital currencies for other assets, like conventional fiat money or other digital currencies. A cryptocurrency exchange can be a market maker that typically takes the bid-ask spreads as being a transaction commission for is service or, as a matching platform, simply charges charges.
Concept – A digital foreign currency exchange can be a brick-and-mortar business or even a strictly online 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, digital currency exchanges operate outside of the Western countries to prevent regulation and prosecution. However, they do handle Western fiat currencies and keep bank accounts in several countries to facilitate deposits in different national currencies. Exchanges may accept bank card payments, wire transfers or any other kinds of payment in exchange for digital currencies or cryptocurrencies. At the time of 2018, cryptocurrency and digital exchange regulations in many developed jurisdictions remains unclear as regulators continue to be considering how to approach these sorts of businesses in existence 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 like gold.
The creators of digital currencies are frequently independent of the digital foreign exchange that facilitate trading inside the currency. In one type of system, digital currency providers (DCP) are companies that keep and administer accounts for their customers, but generally usually do not issue digital currency to those customers directly. Customers buy or sell digital currency from digital currency exchanges, who transfer the digital currency into or from the customer’s DCP account. Some exchanges are subsidiaries of DCP, however, many are legally independent businesses. The denomination of funds held in DCP accounts may be of the real or fictitious currency.
Decentralized exchanges – Decentralized exchanges such as Etherdelta, IDEX and HADAX do not store users’ funds on the exchange, but rather facilitate peer-to-peer cryptocurrency trading. Decentralized exchanges are immune to security issues that affect other exchanges, but at the time of mid 2018 suffer from low trading volumes
In 2004 three Australian-based digital currency exchange businesses voluntarily shut down following an investigation through the Australian Securities and Investments Commission (ASIC). The ASIC viewed the assistance offered as legally requiring an Australian Financial Services License, that the companies lacked.
In 2006, US-based digital foreign exchange business GoldAge Inc., a whole new York state business, was shut down from 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 currency exchange and money transmittal business” using their apartments, transmitting greater than $30 million to digital currency accounts. Customers provided limited identity documentation, and can 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 market of transmitting money without a license, a felony violation of state banking law”, ultimately receiving sentences of five years probation.