What is cryptocurrency exchange?

A cryptocurrency exchange or digital currency exchange (DCE) is a business that lets customers trade digital currencies or cryptos for other assets such as fiat money or digital currencies. In exchange for digital currencies and cryptocurrencies, some exchanges accept wire transfers, credit card payments, or any other form of payment. A crypto exchange is a market maker who typically accepts the bid-ask spreads in exchange for a service or as a matching platform. 

Operation 

These exchanges allow users to send cryptocurrency directly to their personal cryptocurrency wallet. While digital currency balances can be converted into anonymous prepaid cards that can be used to withdraw money from ATMs around the world, other digital currencies can only be backed by real-world commodities like gold. 

Digital currency exchanges that allow currency trading are often not associated with the creators of digital currencies. One type of system is digital currency providers (DCP). These are businesses that manage accounts for customers but don’t issue digital currency directly to them. Customers can buy and sell digital currency through digital currency exchanges. The DCP accounts then transfer the currency to or out of the customers’ DCP accounts. While some exchanges may be subsidiaries of DCP’s, many others are legal independent businesses. DCP accounts can contain funds of any denomination, real or fictional. 

You can either have a digital currency exchange in a brick-and mortar business or online. It can exchange traditional payment methods as well as digital currencies. It also exchanges digital currencies and electronically transferred money as an online business. 

To avoid prosecution and regulation, many digital currency exchanges operate out of the jurisdiction of the Western countries. They do however handle Western fiat currencies, and have bank accounts in many countries that allow them to make deposits in different national currencies. 

HADAX, IDEX, and Etherdelta are decentralized exchanges that do not store funds but facilitate peer-to-peer trading of cryptocurrency. 

History

Early history

After an investigation by the Australian Securities and Investments Commission, three digital currency exchange companies based in Australia were forced to close down. ASIC considered the services provided as illegal and required an Australian Financial Services License. The companies did not have one. 

U.S.-based digital currency business Gold Age Inc. was closed down in 2006. It had been operating since 2002. The U.S. Secret Service shut it down. Customers were required to provide limited identification documentation and could transfer money to any person worldwide with fees exceeding $100,000. Budovsky, Kats and others were sentenced to five years imprisonment in 2007 for “engage in the business transmitting money without licensure, a felony violation state banking law” and five years probation. 

The U.S. government directed E-Gold administration in April 2007 to lock/block approximately 56 E-Gold accounts used by The Bullion Exchange. This was done to prevent them from being used by The Bullion Exchange. AnyGoldNow. IceGold. GitGold. GitGold. The Denver Gold Exchange. GoldPouch Express. 1MDC (a Digital Gold Currency based on E-gold) and other entities. G&SR (owners of OmniPay), had to liquidate the seized assets. 

A few weeks later, E-Gold faced four indictment. 

WebMoney made changes to its rules in July 2008. This affected many exchanges. It has been prohibited to exchange WebMoney with popular e-currencies such as E-gold and Liberty Reserve. 

In July 2008, E-gold’s directors also accepted a deal with the prosecutors. They pleaded guilty one count to “conspiracy in money laundering” as well as one count to “operation of unlicensed money transmitter business”. E-gold was shut down in 2009. 

Jean-Loup Richet was a research fellow at ESSEC ISIS and he examined new money laundering methods that cybercriminals used in a report he wrote for the United Nations Office on Drugs and Crime. One common method of cyber money laundering is to use a digital currency exchanging service that converts dollars into Liberty Reserve. This could be sent anonymously. For a small fee, the receiver could convert the Liberty Reserve currency into cash. The alleged founder of digital currency exchange Liberty Reserve, Arthur Budovsky Belanchuk and four others was arrested in Costa Rica and New York on May 13, 2013. He and four others were charged with conspiracy to commit money laundering, conspiracy and operation a unlicensed money transmitter business. Budovsky was a former citizen of the United States and naturalized Costa Rican. He was convicted in connection to the 2006 Gold Age raid. Over $40 million worth of assets were placed under restraining order pending forfeiture and more than 30 Liberty Reserve domain names were seized. It was believed that the company had laundered $6 million in criminal proceeds. 

From 2014 to Present

Many virtual platforms were created to facilitate the exchange of decentralized currencies after the 2008 launch of bitcoin, a decentralized cryptocurrency. They are subject to different regulations from one country to the next. 

Mt. Gox, at that time the biggest cryptocurrency exchange, stopped trading and closed its website. It filed for bankruptcy protection in Japan against creditors. The company started liquidation proceedings in April 2014. This was due to a large theft bitcoins straight from the Mt. The Gox hot wallet, which had begun in late 2011. 

MyCryptoWallet called liquidators in December 2021.