BEGINNER_DOC_019 // BEGINNERS / EXCHANGES
EXCHANGES
An exchange is a platform where you can buy, sell, or trade bitcoin using traditional currency
or other digital assets. Exchanges are the primary on-ramp for new users, but they introduce
custodial risk — the exchange holds your keys. Understanding the difference
between custodial and non-custodial options is essential for every Bitcoin user.
CENTRALIZED_VS_DECENTRALIZED
CEX — CENTRALIZED EXCHANGE
You deposit fiat or crypto to the exchange's account
Exchange holds your funds (you have an IOU / balance)
Trading happens off-chain in the exchange's internal ledger
Withdrawing = they broadcast a Bitcoin transaction to you
Risk: hack, insolvency, regulatory freeze, withdrawal limits
KYC: required (passport, ID, address verification)
Examples: Coinbase, Kraken, Binance, Gemini
VS
DEX / P2P — NON-CUSTODIAL
You retain custody of keys throughout the trade
Smart contracts or atomic swaps execute the exchange
Trading happens on-chain (or via payment channels)
No account, no KYC, no withdrawal risk
Risk: smart contract bugs, lower liquidity, more complex UX
KYC: none required
Examples: Bisq, RoboSats, AgoraDesk (BTC P2P)
EXCHANGE_TYPES
Spot Exchange
BUY / SELL
Buy or sell bitcoin at the current market price. The most common exchange type for acquiring bitcoin with fiat currency.
Order types:
Market order: buys/sells immediately at best available price
Limit order: sets a specific price — executes only if market reaches it
DCA order: recurring buy at fixed intervals (Dollar Cost Averaging)
Fee structure: typically 0.1%–0.5% per trade (maker/taker model)
P2P Exchange
NON-CUSTODIAL
Connects buyers and sellers directly. Bitcoin is held in escrow during the trade, released when payment is confirmed. Minimal or no KYC.
Process:
1. Find a matching offer (price, payment method, location)
2. Bitcoin locked in escrow (multisig or time-locked)
3. Buyer sends fiat via agreed payment method (cash, bank, etc.)
4. Seller confirms receipt → escrow releases BTC to buyer
5. Dispute resolution via arbitration if needed
Examples: Bisq, RoboSats (Lightning), HodlHodl
P2P exchanges are the most private way to acquire bitcoin. Many support cash trades with in-person meetups.
Bitcoin ATM
CASH ON-RAMP
Physical machines that accept cash and send bitcoin to a provided address. Convenient but typically have high fees (3–15%) and often require KYC above certain limits.
Process:
1. Scan your Bitcoin address QR code
2. Insert cash
3. Machine broadcasts a transaction to your address
Fees: 3–15% above market (built into exchange rate)
KYC: Often required above $1,000–$3,000 (varies by jurisdiction)
Global ATMs (2024): ~38,000+
BUY ON EXCHANGE — WITHDRAW TO SELF-CUSTODY
USE EXCHANGES AS AN ON-RAMP · NOT A LONG-TERM STORAGE SOLUTION
CUSTODIAL_RISKS
NOTABLE EXCHANGE FAILURES
Mt. Gox (2014): 850,000 BTC lost — hack.
QuadrigaCX (2019): $190M frozen — CEO death.
FTX (2022): $8B insolvent — fraud.
Customers lost funds in all cases.
QuadrigaCX (2019): $190M frozen — CEO death.
FTX (2022): $8B insolvent — fraud.
Customers lost funds in all cases.
GOLDEN RULE
Only keep on an exchange what you plan to trade in the near term.
After buying, withdraw to your own wallet where you
control the private keys.
TERMINOLOGY_INDEX
CEX
Centralized Exchange. A company that holds custody of user funds and operates an internal order book.
DEX
Decentralized Exchange. Non-custodial trading via smart contracts or peer-to-peer-p2p/">peer-to-peer protocols.
KYC
Know Your Customer. Identity verification required by most regulated exchanges (passport, ID, address).
DCA
Dollar Cost Averaging. Buying a fixed fiat amount of bitcoin at regular intervals regardless of price.
Maker/Taker
Fee model: makers (limit orders adding liquidity) pay less; takers (market orders removing liquidity) pay more.
Custodial
A service that holds your private keys on your behalf. You have a balance claim, not on-chain bitcoin.