It seems that everyone in the world is talking about buying or trading cryptocurrencies. Buying digital coins has become a fairly popular way of gaining passive profit. If you invest correctly, you can get amazing results. But what if you wish to buy cryptocurrency rather than mine it?
To get cryptocurrency that you like, you can use crypto exchanges. They work almost like traditional exchanges, but online and require strict identity verification. For instance, if you have a verified account on a crypto exchange platform, you can convert btc to xlm, or fiat money to the crypto coin you prefer.
But what exactly is a crypto exchange and how does it work? Check out the article to find out.
How do Crypto Exchange Platforms Work?
There are mainly two types of exchange platforms to use if you wish to get a certain digital token. These are:
- decentralized crypto exchanges;
- centralized crypto exchanges.
Decentralized crypto exchange connects buyers and sellers. It requires no third party hence the name of the platform. Decentralized platforms usually have no fees or they are tiny. Centralized platforms require the existence of a third party. These types of exchange are more convenient since they work 24/7, and you don’t need to look for a seller with the currency that you need. But what about the prices?
Do Exchange Platforms Set Prices on Digital Tokens?
It’s a rather popular question among beginners. Crypto exchanges, whether centralized or decentralized, never set prices on digital tokens. The prices of each digital token depend on the market. Only the market sets the cost, and it usually depends on several factors. For example, the demand. If the digital coin is gaining popularity and everyone is buying it, the price will go up.
Because most cryptocurrencies are currently being mined, their number is limited. So, when everyone all of a sudden decides to buy a certain coin, its price will inevitably go up. But the same rule is applied when the currency loses popularity.
Such a factor as competition also affects the market. Even the costs of mining a certain digital token affect the price. Usually, the more miners spend on mining, the higher is the price. If the demand for a crypto coin is low, but the volume is high, the price usually is lower. And vice versa, if the demand is high, but the supply is low, the costs go upwards.
So no, exchange platforms do not determine the cost of the cryptocurrency. You can use exchange platforms to find the cost of each cryptocurrency. For example, if you wish to exchange fiat money for digital tokens, you can learn about the prices on the platform. And also buy the digital currency that you like.