Virtual currency brokers: cryptocurrency platform supervision -Part 1

Si Gyeongmin

Oct 21, 2021

Cryptocurrency platforms and securities broker supervision

(1) Cryptocurrency and cryptocurrency platform

1. The concept of cryptocurrency

Cryptocurrency is a digital asset recorded on a decentralized public distributed ledger. The distributed ledger is called the blockchain and is used as asset ownership and transfer records. Owning cryptocurrency requires possessing a private key. When the private key matches the public blockchain, the owner can access its cryptocurrency and transfer it to others. When this process is recorded on the blockchain, the transfer occurs. Since the blockchain is maintained through a decentralized process, the transactions recorded on the blockchain are irreversible, preventing "double consumption" or "two transfers of the same cryptocurrency". In addition, unlike other digital assets that cannot be converted into cash, encrypted currency can be converted into legal tender.

2. Cryptocurrency wallets and exchanges

An online cryptocurrency wallet is a service that stores and protects cryptocurrency on behalf of customers. The private key allows the owner to transfer their cryptocurrency, and the wallet provider holds the private key on behalf of its client, acting as its custodian. In fact, when customers hold cryptocurrency in an online wallet, they cannot access their private keys. Instead, they must trust the wallet provider who holds the cryptocurrency on their behalf.

Unlike wallets that only hold cryptocurrency, cryptocurrency exchanges also provide a market where users can trade one cryptocurrency with another cryptocurrency or government-issued currency. The currencies and fees required by these exchanges vary. Fees usually include commissions for each transaction and withdrawal fees for transferring cryptocurrencies from exchanges. In addition, the exchange only trades between customers who have cryptocurrency wallets. In order to trade on the exchange, the customer must hold cryptocurrency in the exchange's wallet.

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