Privately run platforms known as cryptocurrency exchanges make it possible to swap one cryptocurrency for another, as well as for digital, fiat, and NFT currencies. A cryptocurrency exchange is an online marketplace where the user may buy and sell digital currency. Crypto currency exchanges allow the user to exchange one cryptocurrency for another—for example, trading Bitcoin for Litecoin—or to purchase cryptocurrency with fiat money. The pricing of the cryptocurrencies on exchanges are based on current market rates. On an exchange, the user can also trade cryptocurrencies back into the common currency or another currency, which they can then keep as cash or withdraw to their own standard bank account.

Types Crypto exchanges in India

Centralized cryptocurrency exchanges: Centralized cryptocurrency exchanges are online marketplaces where cryptocurrencies can be bought and sold. Investors most frequently utilise them to buy and sell cryptocurrency holdings. The concept of centralization in the phrase “centralised cryptocurrency exchange” alludes to the usage of a middleman or other third party to facilitate transactions. This middleman is trusted to handle the assets of both buyers and sellers. In a bank setting, where a consumer trusts the bank to hold his or her money, this is typical.

Decentralized cryptocurrency exchanges: Decentralized exchanges are online marketplaces where users may conduct direct transactions in cryptocurrencies. This indicates that there is no central intermediary involved in the transactions, which take place through a peer-to-peer process (“P2P”)  Crypto investors’ have complete control over their money.  Decentralized exchanges therefore do not serve as a custodian of investor cash. As a result, they lack the necessary infrastructure and digital wallets to keep user payments in a secure manner.

How does crypto exchanges work?

The cryptocurrency community itself controls and regulates all activities conducted on the market for cryptocurrencies. Additionally, although cryptocurrency investments have great returns, the market is quite erratic, and once a transaction has been made, it cannot be undone. Once a trading platform has been chosen, the investor must complete the KYC (know your customer) process by uploading all the necessary documentation online to the exchange.

An investor can start trading cryptocurrencies once the KYC procedure has been finished and all necessary documents have been validated by the relevant crypto exchange. The crypto currency exchange frequently employs a variety of strategies while doing transactions. Peer-to-peer transactions are one of these strategies. Crypto exchanges function 24 hours round the clock and do not have opening or closing hours like normal stock exchanges.An investor can either store the crypto currency in a digital wallet or can withdraw it in the form of money.

Types of Cryptocurrency Exchanges Charges in India

In India, different cryptocurrency exchanges levies different charges and fees. These are as follows:

Joining Fee

Majority of the cryptocurrency exchanges in India, such as WazirX, Zebpay, Bitbns and Unocoin, have completely waived off the joining fee. However, there may be a very small amount of membership fee in the case of inactive accounts.

Deposit Fee

This fee is charged when the user deposits money or coins to the crypto exchange to initiate the buying or selling. Deposit fee amount depends totally on how the user has transferred the money, whether through payment service providers, Mobikwik, a crypto wallet, UPI, Net banking or bank transfers.

Trading Charges

Trading charges are the most important part of cryptocurrency exchange’s fee mechanism. Trading fees may be levied as a flat percentage of the amount of crypto that a trader buys or sells, or an exchange may charge according to the orders placed, such as makers and takers, are charged differently.

A maker is a party that creates liquidity on the exchange by selling cryptocurrency The taker is the party that takes it off the liquidity by buying the cryptocurrencies. Both maker and taker pays a certain amount of fees for the transaction. However, makers generally pay less.

The trading charges vary across exchanges, ranging from almost 0%  to 0.25% in most of the exchanges. However, it is to be noted that certain exchanges claim to charge the user zero fees, one must look carefully, that if they are charging in the form of spread — the difference between the rate of buying or selling the cryptocurrency. And, generally this rate is higher as compared to the trading fee.

Withdrawal Fee

Some exchanges charge the user on the withdrawal of money into fiat. Withdrawing money happens when a user places a sell order on the exchange and then the funds reflect in his or her wallet. The user can withdraw money fully or partially, into their registered bank account, for which he or she may be charged. The user also has the option of making a withdrawal in coins, that also has a cost attached.

Peer to peer transaction

Peer-to-peer (P2P) trading describes unregulated exchange systems that let consumers deal directly in cryptocurrency. The trading strategy is different from centralised exchanges in that it is less susceptible and involves no third party managing your money while you are trading. P2P trading is entirely decentralised since it functions without the need for a centralised authority. Additionally, because the system is based on peer-to-peer protocols, users can connect with one another directly to conduct cryptocurrency transactions without the need for a mediator.

Since all participants in P2P trading have identical rights and obligations, third parties are not required. Instead, to validate transactions and stop double spending, the system uses consensus techniques. Every participant has a copy of the ledger containing information about all transactions performed by all other participants in the network.