Differences Between Exchanges

Difference in CryptoCurrency Exchanges

below is an extract. go here for source.

Dash Links
Dash.org Dash Price Exchange Get a Dash Wallet Australian Dash Exchange Coinspot
Buy Dash and Shop Dash Nearby Dash Wallets (experienced only) Online Dash Wallet

There are 3 main bitcoin exchange models:

  1. marketplace exchanges
  2. exchanges
  3. ATM/SMS exchange services

When people talk about bitcoin exchanges, they generally mean any of these 3 types of business (or a hybrid exchange that is a mix of 2 models).

A marketplace exchange is an exchange but an exchange like CoinJar (which does not have a marketplace) cannot be a marketplace exchange (it’s just an exchange).

Price-When-Cleared (PWC) Model

A price-when-cleared model is any type of the above exchange models that has a price based on when they get your deposit, not when you place your order. This is not really a problem if the PWC exchanges’ competitive position remains the same over time and you are happy to move with market forces.

One possible advantage of being a price-when-cleared exchange is that there is less risk to the exchange if markets change so they can offer a smaller spread on their prices. It’s worth checking the long term graphs on the buy and sell pages of CompareBitcoins to check their position remains similar over weeks, not just 12 hours.

CoinTree is an example of a PWC model, it’s a price-when-cleared exchange.

Marketplace exchanges can be either be;

  1. pay-via-exchange (BTC Markets, Independent Reserve), or
  2. pay-user-to-user (LocalBitcoins.com).

The pay-via-exchange marketplaces have ‘buy order books’ (asks) and ‘sell order books’ (bids) with users filling the order books with ‘asks’ and ‘bids’ at varying rates. When you buy from a pay-via-exchange marketplace you give $AUD to the exchange but with pay-user-to-user marketplaces you give $AUD to other users.

Trading via a via-the-exchange marketplace is better than pay-user-to-user (LocalBitcoins.com) because you can’t get scammed by bad/rouge users and there is much less chance of funding crime/terrorism.

Marketplace Exchange
(BTC Markets, Independent Reserve, LocalBitcoins.com)
(CoinJar, Bit Trade, etc.)
Pay-via-exchange marketplace exchanges
(BTC Markets, Independent Reserve, etc.)
Pay-user-to-user marketplace exchanges
(LocalBitcoins.com, etc.)
Pay normally

When buying or selling you are doing so via the exchange (i.e. you deposit into the exchanges bank account).

Most trades on pay-via-exchange marketplaces are market orders which is when trades are place at whatever the price is on the current market. An alternative to a market order is a limit order. When you place a limit order you decide what price you wish to buy or sell at with your order being added to the order book and will be waiting for someone on the other order book to match your price/volume.

Buy at market (i.e. buy from ask order book) Tick
Place bid on order book Tick
Sell at market (i.e. sell to bid order book) Tick
Place ask on order book Tick

When buying or selling you are doing so via other users (i.e. you deposit into a users bank account).

Pay-user-to-user marketplaces have lists of offers from users but the offers include more detail than order books from pay-via-exchange models because user reputation is important. These lists on pay-user-to-user models include more details such as as conditions for trade, ‘trust/trade history’ data, deposit preferences, and obviously the user’s price.

Pay-user-to-user marketplaces counter bad/rouge traders with a member ranking system which allows you to pick the most trustworthy traders, based on number of completed transactions. They may also have a dispute process which handles and validates the legitimacy of each claim on a case by case basis. Verifying users mobile numbers can also help.

Place buy order against seller on offer list Tick
Place buy offer list item Tick
Place sell order against buyer on offer list Tick
Place sell offer list item Tick

No order books, or offer lists. The price you see on the buy page is the only price offered. You only deal with the exchange.

Place buy order Tick
Place sell order Tick

Hybrid Exchanges
can have a sell order book/list of sell offers (like a marketplace exchange), and a buy page that is like an exchange (you pay money to the exchange and there is no ‘buy order book/buy offer list’). The benefit of of a hybrid exchange is that the buy page is simple and easy for new users (most new users will buy bitcoin rather than sell), and the sellers can compete for new buys via an order book/list of orders.

The only problem with a hybrid exchange was that the buy price was an estimate (it gets finalised when hybrid exchange receives the cash deposit), and the sell page prices and volume is confirmed only when a hybrid exchange buyer buys. As the prices were not finalised I couldn’t full compare the prices like other exchanges on CompareBitcoins.

Place ask on order book Tick
Place buy order (i.e. buy from ask order book) Tick

More On Differences

If the exchange does EFT, BPAY, or other non-cash-over-the-counter transfers then you will generally be required to provide ID. Some exchanges allow cash-over-the-counter purchases of bitcoin and transfer to your bitcoin wallet without ID.

Exchanges verifying ID helps prevent AML (Anti Money Laundering), and CFT (CTF stands for Counter Terrorism Financing), prevent fraud (e.g. stolen bank accounts), and charge backs.

Re: GST. No more Australian bitcoin exchanges are charging the 10% GST (e.g.: there was a time when you bought $100 worth of bitcoin, and you pay $10 GST + the exchanges fee) on the full amount of bitcoin you buy. Some Australian bitcoin exchanges are charging 10% GST on the fee amount (i.e.: If their fee is 5%, they only charge 10% of that 5% rather than 10% of the entire bitcoin amount). Exchanges may not even mention GST due it being such a small amount and absorb it into their fee. In other words, 10% GST is generally no longer charged on the full bitcoin price.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s