Hello, in this lesson we are going to cover what a Bitcoin exchange is actually not just exchanging we are going to cover what a exchange in general is not just for Bitcoin obviously most people at the moment are probably only interested in the Bitcoin sort of thing, but an exchange is the same principle for all of the cryptocurrencies. Before we get onto what an exchange exactly is, was going to briefly recap on wallet. If you haven't checked out why bitcoin wallet video is Feel free to check that out and come back here, but just a overview. A wallet allows you to send coins or the Bitcoin or fear into the manner that allows you to receive I spelt with the wrong we see coins and the allows you to store them. So that is what a bitcoin wallet does. So what does a Bitcoin or any other cryptocurrency exchange do?

At the moment? All of this assumes we have a particular coin so I'm going to use the example of Bitcoin. So imagine if we have bitcoins, that's great. We can send them we can receive them, we can store them in this particular bitcoin wallet, but why if we don't have Bitcoin, but we want to get hold of bitcoins, maybe I have dollars and I want to get hold of X number of bitcoins. How do I go about that? You can't use your wallet to actually get hold of bitcoins because again, your wallet, you can think of it just like your physical wallet, what's in there, that's fine.

But if you want to say convert that Something else you need somebody to facilitate the exchange process. So that's why an exchange at its core is an exchange allows you and exchange allow the conversion essentially conversion of one currency to a never. So, wherever that is, that is not dollar, wherever that is like United States dollars to Bitcoin, that would be the process of what you would use a in exchange for wherever it is, let's say, e FF e Areum. So, this is a cryptocurrency to Bitcoin. Again, you will need some sort of an exchange wherever it is Bitcoin to, let's say great British pound. So we have two use cases going backwards and forwards.

We've mentioned that for your currency, we have a use case where it is just purely from one cryptocurrency to a number. So this is essentially the use cases of a cryptocurrency exchange. What you'll find is a lot a lot of the exchanges you use well double up as wallets as well. So they'll actually be a wallet in In essence, I should say because realistically, if you have a physical wallet, for example, so something that's in your pocket, and let me draw a wallet. I am not very good at drawing so bear with me. Yeah, like I said, I'm not very good.

So this is my amazing wallet. In here. We have some dollar no work cash rich. So let's say we have a single $100 note. And let's say we have a bank that we have an account with, and the bank is storing $5,000 worth of our money. Regardless of what happens to our bank, our $100 note will still remain in our possession.

So assuming that Government is still accepting hundred dollar notes. If for whatever reason, the bank default and the governor for for whatever reason is unable to back the bank, and you can no longer get your $5,000 out of there or maybe not in its entirety, because the government backs banks up to a certain amount. So let's say in this case, in this world, it only backs it up to $3,000. If this bank would fail, that means you would lose $2,000. Sorry, nope, you would lose. Oh, yeah, that's correct.

So you would lose $2,000 out of the 5000. So in this scenario, you would lose 40% of your money in the bank, whereas a This $100 note or whatever you had in your physical wallet will still remain. Again, like I said, this will not get affected. So this is the common functionality or the common aspect that wallet there are part of exchanges have, if let's say you have an account with, I'm not picking on anyone in particular, but Coinbase is like the most widespread and biggest system at the moment, days an exchange that allows you to convert from dollar to Bitcoin, Bitcoin to other stuff, cetera, et cetera, and essentially has wallet functionality built in. So it's not in essence, a true wallet. In the US they get a hardware wallet or even a software based wallet with private keys, and that is not controlled by a central authority, whereas Coinbase is a central 40 what Coinbase is saying is trust And not just Coinbase.

Again, I don't want to pick on just then because I think Coinbase are fantastic, their service is great, the app and great etc, etc. But they're saying trust us, we will store your currency wherever it is. And as long as we're still in business and still able to operate you can with drawer it. And this sounds very similar to the way a bank operates in terms of with your money. If, for example, the the actual exchange where to go but so this one coin base in this instance, you would essentially lose your coins, your currency, whatever it's storing. So that's something to note.

So that's the difference between an exchange in a wallet, local thing, a lot of exchanges actually double up as wallet in some fashion and most people will probably not use wallets in their core form, especially not in the whole, I would say medium term. They'll probably use exchanges which have wallet functionality just because it's easier and it's familiar in terms of using a bank. But in terms of exchanges, the biggest thing you need to know is that it allows you to go from one currency to a nova, and a wallet allows you to store but that's it for this lesson. Finger any queries feel free to reach out or go through the video again and check out concepts that we covered. And as usual, thanks for watching, and I hope to see you in my next lesson.