Bitcoin is a digital currency meant to facilitate the same peer-to-peer value exchange that is possible with cash transactions. This signifies that you have the ability to trade bitcoin for something you desire, and you are able to do so without the use of intermediaries such as banks or payment applications.
For instance, if you hire someone to paint your house, you might be able to arrange with that individual to have the agreed-upon payment sent in bitcoin instead of traditional currency. In all practical respects, this would be similar to turning up money in exchange for the painting service being performed on the house.
On the other hand, if you are interested in purchasing bitcoin, you may make an offer to the seller in which you trade an accepted amount of money (or any other item or service) for an agreed-upon quantity of bitcoin.
Naturally, because the large majority of individuals do not utilize bitcoin as an exchange medium in their day-to-day lives (at least not for now!), it is usually more difficult to locate peer-to-peer sellers and buyers than it is to, for instance, exchange in domestic currency. This is because bitcoin is a decentralized digital currency. This leads us to the idea of “liquidity,” which we will now discuss.
Finding a Cryptocurrency Exchange
With so many cryptocurrency exchanges on the market, it is not a shock that many individuals that are looking to get into trading find it difficult to find a reliable exchange. Fortunately for you, we have found the best place to start! You can find crypto exchanges on B2C, which is a highly reliable information source on crypto. So if this interests you, make sure to go and take a look!
Defining “liquidity”
The simplicity with which one can trade into and out of an asset is referred to as the asset’s liquidity, and its level of liquidity is mostly determined by the number of buyers as well as sellers (market participants) that are interested in the asset. Because of the widespread acceptance of cash as a medium of exchange, it is frequently regarded as the most liquid asset.
To put it another way, it is not difficult to trade cash for virtually anything you’d desire. When compared to cash, a vehicle, on the other hand, is considered to be a less liquid asset on average because it takes more work to locate a buyer. A high-end collectible vehicle, on the other hand, would represent an asset that is even less liquid due to the fact that there is a limited pool of possible buyers.
Bitcoin is practically the most liquid among all cryptocurrencies because it mixes the largest number of users with the greatest volume of exchange. This makes Bitcoin the most desirable cryptocurrency to invest in. The amount of money that is traded in bitcoin on a daily basis can be estimated in the tens of billions of AUD dollars.
However, in contrast to money, it is not a liquid asset, especially when it relates to the ability to use it to purchase something in the physical world. Because of this, there is a demand for cryptocurrency exchanges to exist.
Explanation of how Bitcoin centralized exchanges functions
The following is an example of a typical flow, as seen from the point of view of a user:
- Create an account on the exchange and bring in your identification papers.
- You can finance your brand-new profile with bitcoin, any other alternative cryptocurrency, or even local currency if the exchange supports such a payment method.
- When you trade, use the term “buy order.”
- The exchange maintains an ‘order book’ to effectively match sellers and buyers. Many exchanges enable the market and restrict purchase orders. In a market purchase order, you just specify how much bitcoin to buy (not the price). The exchange would fully automate your deal with the lowest-priced seller(s). Market orders are often immediate, indicating you’ll get your bitcoins in your exchange account/wallet as soon as you make the transaction. When you establish a limit purchase order, you specify the amount and price of bitcoin you want to acquire. If sellers approve your value (your ‘limit’), your transaction would be completed, indicating your bitcoins would turn up in your exchange account and your cash (or another cryptocurrency) would vanish.
What is meant by the term “banked exchange”?
“Banked exchanges” are indeed a specific type of cryptocurrency trading platform which enables users to move fiat dollars into and out of their accounts. There are certain exchanges that will let you transfer national currency so that you may begin shopping with it (often in the form of a credit card or a payment application such as PayPal), but they won’t let you withdraw national currency back to your payment application or credit card.
Such types of swaps are referred to as “partially banked” exchanges. If you choose an exchange that is completely banked, you will be able to fund your account with a bank transfer and then transfer your national currency directly to your bank account.
Who are the producers and who are the takers?
In a general sense, the bigger the number of users that an exchange possesses, the larger the “market depth” that it is capable of providing. The volume of an exchange’s trading volumes is what is meant by the term “market depth.”
Market makers are individuals or organizations that act as intermediaries between buyers and sellers on exchanges. Individuals will be able to purchase and sell larger bitcoin amounts at prices that are nearer to the rates of the global market as soon as there are more transactions on the book than there were previously. Takers are the participants in a market who lower the amount of available liquidity by accepting orders that have already been recorded.
You are considered a taker whenever you make a market order. When you make a limit order, you have the option of either being a maker or a taker depending on whether or not your order occurs to coincide with another individual’s order that is currently on the books.
