What is a 'Digital Currency Exchanger (DCE)'

A digital currency exchanger (DCE) is a market maker who exchanges legal tender for electronic currency, or who exchanges one electronic currency for another. Most exchanges happen online rather than at physical locations. A DCE charges a commission for this type of transaction. This commission can be in the form of a set fee or percentage taking the bid/ask spread. Exchangers may also accept payment by credit card, cryptocurrency, wire transfers, money orders and other payment methods. DCEs are also known as crypto or cryptocurrency exchanges.

BREAKING DOWN 'Digital Currency Exchanger (DCE)'

​​​​​​​Digital currency exchangers might send funds directly to an investor's virtual wallet, or convert currencies to prepaid cards which can be used to withdraw cash from ATMs.

Digital currencies operate as self-governed currencies, unlike fiat money, which is legally sanctioned by a government. For example, digital gold currency (DGC) is an electronic currency which has its value based upon the gold bullion price. DCG offers the user the same hedge against inflation as physical ownership of gold but is purported to be more secure and convenient than holding the physical commodity.

Investors should be well aware of the risks associated with digital currency exchangers. Global regulation of electronic currency varies, and its advent is still relatively young. As Bitcoin Magazine opined, " Things [Cryptocurrency issues] have already begun to heat up as countries around the world grapple with cryptocurrencies and try to determine how they are going to treat them. Some are welcoming; others are cautious. And some countries are downright antagonistic."

Recent Developments in Digital Currency Exchange

Digital currency exchangers are in a time of transition with the rise of cryptocurrencies such as Bitcoin, Litecoin, Ethereum, and others. There are many different digital exchanges, some more reliable than others. Most of the exchanges are privately held businesses, which makes the access to financial information and company management troublesome. Also, due to the newness of cryptocurrency, many exchanges have only been in business for a few years.

DCEs vary on the fees or commissions which they charge users as well as the currencies or cryptocurrency they accept. Trades as well as holding an open account may incur a fee from these providers. Users are advised to research available digital currency exchanges and compare the posted fees and commissions before opening an account.

Regulators in the U.S., U.K., Europe, Asia and elsewhere seem to be finally grappling with the fact that companies operating in this fast-evolving market need to be regulated more definitively. According to Valdis Dombrovskis, vice president of the European Commission and reported in Reuters, "There are clear risks for investors and consumers associated to price volatility, including the risk of complete loss of investment, operational and security failures, market manipulation, and liability gaps,"

One of the newest and most popular digital currency exchangers is Coinbase. Like the website, Lifehacker put it "Think of Coinbase and its ilk as a combination of stock exchange and bank. You can use these exchanges to trade cryptocurrencies and store what you have in a digital wallet (though there are better ways to keep your money safe offline). Most also offer price tickers where you can track the rise and fall of various cryptocurrencies over time."

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