Bitcoin Trading

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The adoption of bitcoin as an alternative currency is still evolving. The digital currency has gained millions of users in the past few years. However, it still has some way to go in terms of adoption and usage in order to become one of the mainstream currencies. Until then, bitcoin will be forced to be used alongside a reputed fiat currency pair. Converting bitcoin to its equivalent value in any fiat currency is carried out on Bitcoin Exchange Platforms.

Bitcoin Exchanges are platforms where users can exchange their bitcoin for an equivalent value in fiat currency. Bitcoin exchanges are an integral part of the ecosystem as they create a bridge between the traditional fiat currency and cryptocurrencies. This bridge allows people to conduct transactions and pay for goods and services using fiat currency and bitcoin interchangeably. However, very few merchants accept bitcoin at the moment. Most of the bitcoin accepting merchants do so through a bitcoin payment processor. The bitcoin payment processor acts as an exchange by converting the bitcoin received from customers into fiat currency. The converted fiat currency is then transferred to the merchant’s connected bank account.

Bitcoin exchanges also make foreign remittance using bitcoin possible. Whenever someone decides to take advantage of the speed and low transaction fees offered by bitcoin, they can convert their fiat currency to bitcoin on any bitcoin exchange of choice and send the same over a bitcoin network to the recipient. The recipient will then convert the received bitcoin to local currency at a local exchange. This way, fund transfer across the globe can happen in a matter of minutes to a couple of hours instead of days. Nowadays, there are specialized remittance services which use a similar concept on a single platform to facilitate money transfer.
There are different types of cryptocurrency exchanges as well. Numerous exchanges allow users to convert bitcoin to specific fiat currencies and/or buy bitcoin using fiat currency. These exchanges may or may not have an inbuilt wallet feature that allows users to store their bitcoin and/or fiat currency on the platform itself.
Trade Engine
Generally bitcoin exchanges allow users to buy and sell bitcoin at any particular time while operating their account with the exchange. Nowadays, many of these exchanges have integrated trade engines that allow users to trade their digital currency by placing future buy and sell orders. These orders will then be executed against the exchange’s order book based on supply and demand.

Cryptoexchange

Bitcoin exchange is mostly associated with platforms that allow users to sell/buy bitcoin against specific fiat currencies. However, there are many altcoins which can be traded for bitcoin or other cryptocurrencies. One such example is ShapeShift where users can enter send a cryptocurrency to the exchange and include the recipient’s wallet id to receive the exchanged altcoin of choice. Users have to make sure that the recipient’s wallet can support the particular digital currency requested. These exchanges do not deal with fiat at all.

Introduction of AML
Bitcoin was created with the intention of establishing a decentralized, anonymous, secure and transparent digital currency where information about the transactions can be visualized while keeping the identity of people behind the transactions hidden. However, the pseudonymity associated with it made bitcoin an ideal currency for money laundering, purchase of illegal drugs and contraband over the deep web etc. In order to prevent the use of bitcoin for illegal activities and to ensure compliance with government regulations, bitcoin exchanges have included Anti-Money Laundering (AML) and Know Your Customer (KYC) norms.

AML and KYC norms requires account holders on bitcoin exchanges to furnish documents proving their identification and address among others. The AML and KYC norms may vary from region to region.

Wallets
Bitcoin wallets are software applications that allow users to store, transfer and receive bitcoins over the Bitcoin network. These wallets can be of online or online nature. Offline bitcoin wallets are generally downloadable applications that can be installed on the user’s mobile phone or computer. The online wallets are third party hosted service that one can access using his/her browser and conduct transactions.

Hardware wallets are separate devices built to store bitcoin or other digital currencies. While the transaction mechanism remains the same, hardware wallets are considered to be more secure and close to physical wallets people carry.

Wallets have two sets of keys, a private key and public key. The private key is responsible for authorizing transactions and it is securely associated with the wallet. The public key corresponding to private key is used as wallet address. The keys generally use 256 bit encryption to ensure security of bitcoin transactions and deposits. Under no circumstances should one share his private key with others.