Crypto Exchanges vs Stock Exchanges: How Do They Compare?

While on the surface, cryptocurrency exchanges may resemble stock markets in some ways - matching buyers with sellers and publishing prices - when examined closer, they differ quite vastly in terms of their overall associated risks and functionality.

At a basic level, both crypto and stock exchanges serve as places for asset trades, but the similarity ends there.

This is because crypto exchanges not only charge brokerage commissions for facilitating currency trades but also hold on to an investor's assets.

To put it bluntly, the core danger that alt asset-investors face when investing their funds via digital exchanges is that they can potentially lose their entire savings either due to cases of theft by hacking or by the exchange itself shutting down.

Mt. Gox - once the world's number one digital currency exchange, hackers stole more than $473 Million worth of virtual assets from the platform back in 2014.

Bitfinex - touted as the second biggest hack in the history of cryptocurrencies, the Hong Kong-based exchange platform saw cyber-thieves get away with a staggering 120,000 BTC back in August 2016.

Also worth noting is that recently, exchange platform Gemini Trust Co. solicited the services of financial powerhouse NASDAQ Inc. to keep tabs on potentially abusive trade activities pertaining to Bitcoin and Ethereum that might be taking place on their servers.

While Japan established a licensing system for digital-asset exchanges last year, countries like Malta have also been working to create an economic framework that will help cement the island nations place as being one of the primary hubs for cryptocurrency trade and exchange.

Last month, ex-New York State Attorney General Eric Schneiderman issued a letter of scrutiny to 13 exchanges seeking key information regarding the workings of their security mechanisms as well as the measures they were taking to protect investor holdings.

Financial analysts such as David Lee, author of the Handbook of Digital Currency, believe that decentralized exchanges will become the primary source for cryptocurrency trade in the coming 5-10 years.