Bitcoin exchanges are often sent to and from an electronic Bitcoin wallet and they are often digitally signed for security purposes. Everyone within the Bitcoin network exchanges knows about the transaction, as well as the history of a transaction, and thus, it can be traced back from the place where the Bitcoins were acquired from. There are many different values of Bitcoins so how do you find the “real” value? We here at Bitcoin Value use a weighted average among the three largest exchanges. Which best represent the true value of a Bitcoin.

Holding onto your Bitcoins is great if you want to wait for the price to go up. But then the main purpose of this currency is to spend it, right? And when it comes to spending the Bitcoins, how do the transactions work?

Currency Exchange

Bitcoin currency exchanges work in the same way with banks. One will have to first make a deposit in the currencies that are being supported by the Bitcoin Exchange, towards his own account. Afterwards, the user can use the balance on his account to trade with other users of Bitcoins and then later on withdraw that money. Unlike the usual over the counter transactions, there is no risk of losing money within the Bitcoin network as a result of people not fulfilling their part of the deal for as long as the people involved in the Bitcoin Exchanges will not commit to fraud or withhold the money.

Exchanging Bitcoins is done by simply placing buy or sell orders, where the exchange software team will then match each other. “Buy” orders or bids simply means an offer to buy the Bitcoins in exchange of another currency at a maximum price per Bitcoins and is often set by the one who offered. “Sell” means an offer to sell the Bitcoins at a minimum price per Bitcoin.

If the bid price of a buy order is higher than the asking price of the sell order, then the exchange can be performed and either the buy order, sell order or both can be removed out of the order book. At any given time, there is a price above which there are no more buy orders and at a slightly higher price below which there will no longer be sell orders.

Communication within the Bitcoin Exchanges is often done with the use of any web browser through a secure SSL connection. The payment methods that are generally accepted within the Bitcoin currency exchanges are:

  • Bank wires
  • Bitcoin transfers
  • Credit cards
  • Liberty Reserve

The currencies that can be exchanged using Bitcoins through an automated way are the following:

  • Euros
  • Japanese Yen
  • Pecunix Gold
  • Pound Sterling
  • Russian Rubles
  • US Dollars

Soft Currencies and Chargeback

Exchanging Bitcoins for another form of currency has brought up some issues concerning chargeback frauds. Payment methods like PayPal and credit cards have an option to reverse the payment for up to 90 days from the time the transaction has taken place.

On the contrary, Bitcoin is considered a hard currency and as soon as you start to spend your Bitcoins, you can no longer get them back by pulling from your site. So when you trade Bitcoin for a soft currency such as PayPal and credit cards, you are opening yourself up to the risk of chargeback right after you send the Bitcoins.

The buyer could always initiate a chargeback and will claim non recipient of goods and that if a stolen account was used, the real account owner will be the one who will initiate the process as soon as he realizes a charge that he has never made at all. With this, it is highly recommended to avoid trading soft currency for hard currency in with people whom you do not personally know.

Bitcoin Scam in 2010

In January of 2010, the founder of Bitcoin Central has developed an open source currency exchange platform. At that time, there are only two major Bitcoin Exchanges, which are the Bitcoin Market and MtGox. Around October of the same year, these two exchanges were hit by a wave of PayPal scams where certain groups of individuals used stolen PayPal accounts in order to fund their Bitcoin exchange accounts in order to purchase Bitcoins. This resulted to the freezing of the PayPal account of MtGox, as well as a suspension of a new user registration of the Bitcoin market. Such freezing of account has caused a temporary liquidity problem within the Bitcoin economy as it has become more difficult to exchange dollars for Bitcoins.


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