Exchange

An exchange is a platform that connects people looking to buy and sell assets, making it easier for trades to happen. It does this by listing the prices buyers are willing to pay (bids) and the prices sellers are asking (asks). When a match is found between a bid and an ask, the exchange completes the transaction and usually charges a small fee.

With Bitcoin and most cryptocurrencies, exchanges commonly hold onto users’ funds while they trade, acting as custodians. This means users deposit their coins with the exchange and only withdraw after finishing their trades. While convenient, this setup puts users’ assets under the exchange’s control, creating potential security risks if the exchange is compromised.