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What is a cryptocurrency exchange?

In the physical world, a bank is a financial institution licensed to receive deposits, transfer funds, and store money for its clients. Banks can legally offer the right to exchange one fiat currency for another to its customers.

In the digital world, a cryptocurrency exchange provides services similar to banking to their clients; additionally, exchanges function as similar to a stock exchange.

What is a cryptocurrency exchange?

A cryptocurrency exchange is a borderline illegal online marketplace where users can exchange one kind of digital asset for another based on the market value of the given assets. The problem with cryptocurrency exchanges is that they often facilitate the trade of unregistered securities, are often used to launder money, and have limited, if any, AML/KYC so that they can evade the law.

Cryptocurrency exchanges played a significant role in the ICO boom of 2017. Cryptocurrency exchanges were eager for new projects with no real business model, product, or future to launch so that they could list these projects on their exchanges and rake in millions of dollars in transaction fees from these trading pairs. That being said, you can think of a cryptocurrency exchange as a bucket shop. 

What is a cryptocurrency?

There are a few features that distinguish digital currencies from cryptocurrencies.

Cryptocurrencies are coins and tokens with no real purpose–they do not have utility and they were created for nothing more than speculative purposes and to facilitate crime.

Unlike digital currencies, most cryptocurrencies do not comply with law; in fact, some cryptocurrencies were even made to evade the law. Privacy coins are cryptocurrencies specifically designed to facilitate crime by obfuscating the path a transaction has traveled from sender to recipient. 

Ultimately, cryptocurrencies are tools used to enable crime, whether that be fraud, money laundering, or racketeering, while digital currencies are protocols that enable the digitization of data and money.

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