Ever since the creation of Bitcoin in 2009, the world has witnessed a massive boom in cryptocurrencies and their trading. Every day new currencies are being developed and posted on various crypto trading platforms. More than 2,000 currencies are in circulation, with a total market capitalization of more than $ 700 billion.
All of this happens on a cryptocurrency exchange. It is simply an online platform where you can purchase, hold, or exchange cryptocurrencies for another digital currency or fiat money (USD, EUR, etc.). Exchanges that facilitate the buying and selling of cryptocurrencies are the most popular way to trade because they provide retail and institutional traders with liquidity.
Technology Behind Crypto Trading
The era of technology introduces the unique concept of digital coins. Digital currencies exist only in electric form, as the name suggests. They require platforms rather than intermediaries to trade.
Cryptocurrency exchanges such as OKX have become very popular with investors because they allow people to trade 24/7 from anywhere globally without any limit on the amount brought or sold.
However, crypto exchanges come later into the picture. First comes crypto mining and other associated technologies. Let’s go over these technologies in more depth.
Blockchain
A distributed ledger system is what blockchain is. It is made up of blocks that include timestamped sets of fresh transactions. Each block carries the preceding block’s hash in the blockchain, connecting the two. The linked blocks create a chain, with each subsequent block strengthening those before it.
Blockchain technology has several benefits: decentralized , immutable, transparent, secure, and fast. Decentralization means that no single entity controls the data or network; instead, it’s maintained by its users collectively.
Immutability refers to how easy it is to change data once recorded on the blockchain; because data can only be added to the end of a chain as miners create new blocks (see below), changing any historical record would require altering all subsequent blocks.
Transparency means that anyone can view transaction records. Although we’ll see below how this doesn’t compromise security, there is no intermediary when sending or receiving cryptocurrency through blockchain networks like Ethereum or Bitcoin.
Smart Contracts
Smart contracts are an exciting aspect of the blockchain because they’re a way to accomplish things without an intermediary, whether a lawyer when you want to sign an agreement or a financial institution like your bank or PayPal.
With smart contracts, everyone involved can watch everything happening in real-time on the blockchain. And since it’s open-source and auditable, no one is trying to make changes behind anyone else’s back sneakily. (That would be hard anyway with immutable ledgers.)
In addition to cutting out go-betweens and adding transparency, smart contracts make things more convenient by automating execution.
Order Book
The order book is a list of buy and sell orders for a specific asset that shows the number of orders at different price levels. The order book provides an overview of market sentiment and liquidity and can be used to make informed trading decisions.
There are two main parts to the order book: the bid (or buy) side, which lists all pending buy orders, and the ask (or sell) side, which lists all pending sell orders. The bid side for BTC / USD looks like this:
Decentralized Exchanges
Decentralized exchanges are still relatively new in the cryptocurrency world. The first few decades of the 20th century used to be dubbed “the age of electricity,” meaning that a broad swath of society could access the benefits and efficiencies brought on by technology. This time around, we’ve got blockchain technologies powering everything from financial transactions to internet voting — and they’re not slowing down just because hardline cryptocurrency enthusiasts are still debating how decentralized they can get.
What exactly is a decentralized exchange? As you might have guessed, it’s an exchange where no one party has control over your assets or personal information. Instead, you engage with them directly through your Bitcoin address and private keys — no broker needed.
You can think of them as a more secure alternative to the big exchanges, which operate like traditional stock brokerages. Their servers hold records about who owns what and make trades behind closed doors on behalf of their users. To keep track of their users’ assets, they have centralized databases full of data that a hacker could potentially use against you if they got into those computers and stole user information.
If an exchange is so centralized, it’s not even required by regulators or banks to be fully open-source and transparent about its inner workings (like its trading software). It’s just not technically decentralized yet — for now, at least.
The other advantage decentralized exchanges offer immediately is faster trade execution times than most traditional exchanges. With all this being said: Decentralized exchanges are still a pretty new technology with some growing pains ahead before they become widely adopted by traders everywhere — and that makes sense since these things have been around less than five years now!
However, once they’re ready for prime-time status among crypto investors ( 2015 saw the emergence of Litecoin and Ethereum ), we expect decentralized exchanges will continue to gain ground as a convenient alternative for traders looking for privacy or efficiency in their marketplace trading experience (if there’s anything better).
Centralized Exchanges
A straightforward definition would be a platform where the user can trade one asset for another asset. The whole system works under one central database or server, operated by one organization or individual entity which keeps track of all trades on its platform. All trades are being processed through this central entity, and you need to trust them for your funds’ security; otherwise, your funds could be stolen at any moment as there is no decentralized way of handling things.
Conclusion
Now that you know the technology behind cryptocurrency and blockchain, think about how you can use it in your business. Many companies have already taken advantage of this technology. It’s time you start investing in technology. If you are an individual looking to strengthen your personal finance game, crypto is the way.