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Bitcoins can be bought either on exchanges or from marketplaces. The exchanges obviously also use marketplace to get their coins.

My question is, why would anybody use exchanges? There are so many drawbacks, and the only benefit seems to be that ....well, what, exactly? That it takes a wee bit of an effort to buy from the marketplace directly?

The drawback with exchanges:

  1. You have to pay a fee or a commission to the exchange.
  2. You have to wait for them to do their thing, often it can take multiple hours or even days.
  3. You are unsure of the rate at which you buy or sell, and have far less control. It depends on how long it takes for the exchange to go out and get them for you, and it also depends on which rate they are able to acquire. If you are buying them on your own, you know you'll be looking for the best deal. Why trust the exchange to maximize your profits?

So why do people use exchanges? Is finding sellers/buyers on marketplaces willing to trade at the market rate really that hard?

closed as unclear what you're asking by Nate Eldredge, Pete B., D Stanley, MD-Tech, Dheer Nov 30 '17 at 2:31

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    What do you mean by marketplace? You mean local bitcoins? I don't understand your comment about exchanges, as you can can get market rate or place an order for a limit price. Surely an exchange is a marketplace? – Tim Nov 27 '17 at 16:48
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Whether you are trading stocks, bonds, bitcoins, cattle, computers, or pizzas, having a marketplace to buy or sell those goods is generally beneficial to both buyers and sellers.

You're right, you can sell BTC and many other assets and goods with a person-to-person transaction. To do so you have to find another person who wants to buy your assets, negotiate a price, and facilitate the transaction. To buy or sell at an exchange you have to show up at the exchange and list your price. To buy or sell with a broker you can almost just buy and sell, the broker earns their fee by doing the legwork.

BTC has some specific caveats or risks. Suppose you want to sell me 1 BTC for $15,000 and I am willing to buy. Sending me one BTC involves exchanging our wallet addresses and sending the BTC. How do I get you the money? Do we meet face to face? How do we know the face to face meeting isn't a setup for a robbery where you get my money and your BTC or vice versa? What if I'm shipping a fancy computer to you for your BTC, how do I get paid and know you won't just keep the computer? How do you pay me and know that I'll send the computer? Exchanges reduce those risks by setting up rules, escrow accounts, and protecting both parties to the transaction.

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