Explore the Fundamentals of Cryptocurrency Exchanges: What They Are and How They Work


Changpeng Zhao (CZ), the CEO of Binance – the world’s largest cryptocurrency exchange – has pleaded guilty to breaking anti-money laundering laws in the US and consequently, has stepped down from his role and agreed to a settlement of $4.3 billion. This includes CZ contributing $50 million and resigning as CEO. This follows the collapse of Sam Bankman-Fried’s FTX last year, which also shook the global crypto ecosystem. It is expected that this news will cause disruption in ongoing negotiations between industry players and regulators looking to find a common global regulatory framework, according to a report by MoneyControl.

Cryptocurrency exchanges – similar to traditional stock exchanges – are digital marketplaces accessible through mobile apps or desktop functions. They offer users the ability to buy and sell assets such as Bitcoin, Ethereum, and Tether, accompanied by a range of trading and investing tools. To understand cryptocurrency, it is important to first comprehend what fiat currency is.

Fiat money is a type of currency that is not backed by a physical commodity such as gold or silver; its value is instead determined by the belief in the stability and creditworthiness of the issuing government. Examples of fiat currencies include the Indian rupee (INR), US Dollar (USD), and Euro (EUR).

Cryptocurrency is a digital currency, with transactions verified and maintained by a decentralised system using cryptography. This allows for the transaction to be anonymous, secure and trustless, meaning that the parties involved in the transaction do not need to know or rely on third-party intermediaries.

Since Bitcoin’s creation in 2009, the number of cryptocurrencies has grown exponentially, with the UK’s Financial Conduct Authority predicting that there may be over 20,000 by the start of 2023. Forbes reported that the crypto market is expected to reach $4.94 billion by 2030, with some of the most popular cryptocurrencies to invest in being Bitcoin (BTC) (market cap: $721.2 billion), Ethereum (ETH) (market cap: $239.8 billion), Tether (USDT) (market cap: $88.1 billion), Binance Coin (BNB) (market cap: $38.8 billion), XRP (XRP) (market cap: $32.7 billion), and U S Dollar Coin (USDC) (market cap: $24.5 billion).

Cryptocurrency exchanges facilitate various trading options, including margin and lending trading, as well as futures and options trading. Exchanges can be centralised, decentralised, or hybrid; centralised exchanges are regulated by a single authority, while decentralised exchanges provide users with complete control of their funds and are more secure and private. Hybrid exchanges combine the convenience of centralised exchanges with the privacy of decentralised exchanges.

Cryptocurrency wallets – as opposed to exchanges – are used to send, receive, and store cryptocurrency, with wallets existing both online and offline. Unlike exchanges, wallets can store any cryptocurrency, and they generally utilise private keys.

In September, Chainalysis’ 2023 crypto adoption index ranked India as one of the top countries in grassroots cryptocurrency adoption. India recorded approximately $250 billion in crypto value between July 2022 and June 2023, compared to $1 trillion in crypto value in the United States during the same period – although Indian investors have been known to seek international exchanges due to the irregularity of its tax for crypto gains.

CoinMarketCap tracks around 227 spot exchanges worldwide, while in India there are at least 20. These include Mudrex, CoinDCX, CoinSwitch, WazirX, ZebPay, BuyUcoin, Bitbns, Unocoin, and PocketBits, among others.

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