For part 5, in the Bitcoin 101 series, we are going to look at another part of the bitcoin world: Exchanges
When you hear the word exchange you will probably think that someone could give you something and then you will give them something in return. That is basically what an exchange is. Previously in history, there was a system of bartering where a farmer would sell some of his chicken’s eggs in exchange for some corn from a different farmer. However, as different goods have different values, the system of currencies and money developed over time.
Now, when you go to the store and you buy some milk it may cost you $2.00. You would exchange your two dollars for the gallon of milk.
A modern day currency exchange is normally reserved for the exchange of currency from one fiat currency to another. When I recently traveled from the USA to Mexico, I exchanged some US Dollars for some Pesos. There was a fee involved, but in the end I got the equivalent value of pesos for what amount of dollars I had.
Bitcoin is different
In the world of bitcoin, it is different than most other currencies you are familiar with. Bitcoin is digital and global. That means that you won’t ever really need to exchange bitcoin into another currency just because you are crossing a border to a country. Bitcoin can be used in almost all countries. (I say almost because there are some countries trying to outlaw it. But overall, it can be taken anywhere.) It is digital so it isn’t like you have to hide the paper money from anyone. All the bitcoins are stored inside your bitcoin wallet so you only need to make sure that you secure the private keys to your wallet. I would also suggested adding a password and/or PIN and other security measures to protect it.
There are a large number of exchanges on the internet. When you go there you can do a lot of things. On Coinbase, you can create a wallet, buy and sell bitcoins, check the history of the bitcoin price, and a lot of other things. On shapeshift.io, you can exchange one digital currency for another one. A good exchange will have a lot of good features for you to use.
Personal opinion: I would recommend Coinbase because I have used them myself.
Here is the list of all exchanges and what features they provide.
Buy and then transfer
Exchanges – in my book – are meant for only 1 thing: buying or selling currency. When you go to a site, they may want you to create an account. Even if you create an account and/or a wallet, once you have bought bitcoin at that site, be sure to transfer your entire balance to a secure wallet that you are comfortable with. Do not leave any bitcoin in an exchange account that you aren’t willing to lose. That is what happened to many people with Mt. Gox. At the time that Mt. Gox froze everyone’s accounts, they held about 70% of all bitcoins in circulation. It caused a big black eye for anyone using bitcoin at the time as well as new users that just entered the bitcoin world. It was a very sad point in time for the history of bitcoin.
On a personal note, I started learning about bitcoin around the time that Mt. Gox was so big and popular. They were the biggest exchange in use at that time (mid 2013) and if I had known more about bitcoin and how to set up a wallet there, I may have also been a victim. I have sympathy for anyone who used Mt. Gox because it was horribly managed and in the end caused so many terrible things to happen to the entire history of bitcoin.
One of the problems that made Mt. Gox such an easy target for hackers is that they tried to do too many things: wallet service, exchange, payment processor and other processes. If a company wants to do all of those things now, they have a team of people to handle each area. A lot of sites are focused on being either an exchange or something else – like a hosted wallet service.
DO YOUR HOMEWORK!
Be sure to read up on an exchange before you do anything. Look at their history and talk to other people that use the site. Sometimes even a quick google search can reveal a lot.
For a quick look at what bitcoin is worth, find a good exchange site that is interactive and applies to your countries’ currency. For USD, I use preev.com. It allows me to put in partial amounts and then convert in real-time what it is worth.
For a look at what the exchange between USD, BTC, and the Ghana Cedi is, I created the follwoing chart:
It shows what the smallest unit is for each currency is and what the value was in October 2015.
Thanks for stopping by, If there are any of these points that need clarification, feel free to shoot me an email or use the Contact form. Be sure to stop back and see other postings in the Bitcoin 101 series.
Donate any amount to this address to help fund this site: