What Is A Currency Exchange? (And How Does It Work?)

What Is A Currency Exchange? (And How Does It Work?)


Hey guys and girls Welcome back to episode 13, my name is Jake
Owens and this is Millionaire Mindset Hub. Two episodes ago, we briefly touched on what
a cryptocurrency exchange is when I was showing you guys how to withdraw money from MinerGate
and now I’d like to expand on it to give you a more in-depth understanding of centralised
currency exchanges. What they are, how they work and why they’re
so vital to any internationally trading or travelling community as it will give you a
better understanding of how you can turn your digital currencies into traditional legal
tender and vice versa. Let’s get into it. Back in the good old days before King Alyattes
of Lydia which is now apart of Turkey created the first currency we had a thing called barter. Who’s hear of the story of the guy who traded
a paperclip for a house? Basically, what he did was start with a red
paperclip then traded that paperclip for a pen And the pen for a doorknob, The doorknob for a camping stove, The campaign stove for an electric generator, The electric generator for a beer keg and
light up sign, The beer keg and light up sign for a snow
mobile, The snow globe for two tickets to the Canadian
rockies, The two tickets to the Canadian rockies for
a van, The van for a music recording contract, The music recording contract for a years free
rent in a room in a house, The years free rent in a room in a house for
an afternoon with Alice Cooper, An afternoon with Alice Cooper for a KISS
snow globe, A KISS snow globe for a part in a Hollywood
movie, Then he traded in the part in a Hollywood
movie for a house. Essentially what barter is, is exactly what
the red paperclip guy, Kyle MacDonald did. Trade what you have for what someone else
has. Traditionally, you trade livestock, food and
materials. However, it can really be anything as long
as the other person wants what you have to trade for what you want from them. In a barter system, nothing has the same value
person to person. A sheep to some people might be worth 100
carrots, but to the person right next to them only 20. The reason for this is because barter, just
like everything else is determined by the laws of supply and demand, and items and animals
can’y possibly have the same value from one person to the next because each person has
different needs, wants, and may already own and abundance of what you have and therefore
don’t need any more. To make the barter system work, you need to
find the right people at the right time. The biggest issue with traditional barter,
is if you want something which person A has, but person A doesn’t want anything you have,
you have to find out what they want, find person B who has what person A wants and then
trade what you have with person B, assuming they want what you have for what person A
wants and hope they haven’t already traded what you wanted with person C and that they
still want what you traded for with person B. This makes barter extremely time consuming,
chaotic and confusing. As we go further in this video, keep the idea
of barter in your mind. It will help you understand why a centralised
currency exchange is so important later on. So let’s fast forward from barter, to Kind
Alyattes, who as I mentioned before, was the man who created the first known government
issued currency on the planet in the 7th century BCE. The importance of this, is it was the first
time the idea of a standardised value was implemented. Now, this may not seem like a revolutionary
idea, but when you look at the concept where instead of having to trade 5 carrots, 23 eggs,
8 mushrooms and your shoe for a cow, you simply exchange easily transportable and standardised
currency that everybody wants for a cow, it makes a huge impact on your community and
how it functions. No longer do you need to trade with multiple
individuals to get what you want, all you need to do is provide value to your community
to gain more coins which you can then spend to obtain the items or animals that you want
to posses. This gives citizens in your community a much
fairer and easier way to be able to obtain goods and services that they need to stay
alive. It also allows them to accumulate wealth over
time by saving their money and reaching a higher income status rather than having to
paperclip your way to a house which is beyond difficult and very time consuming. Barter is also very troublesome for businesses. Can you imagine as a shoemaker having to negotiate
items and animals to make the materials for each order you place with the material company? What if you didn’t have anything the material
company wanted? What would you do? Wait until you had something that they wanted? Go out of business? It just sounds like a very risky way of doing
things to me. Now that we know a little bit of history around
currencies and why they’re so important let’s look at what a centralised currency exchange
is. A centralised currency exchange is a location
where people buy and sell currencies from each other. It’s as simple as that! It looks complex, people talk a lot of Jargon
and trillions off dollars go through them every single day. But the fundamental concepts of centralised
currency exchanges is that it’s a central place where people buy and sell currencies
from other people around the world. A centralised currency exchange is vital to
any nation that trades internationally with another country that uses a different currency
than their own. This is because it allows you to determine
the value of both currencies you’re trading with. For example, if your nations legal tender
holds a higher value than nation B, nation B would have to give you a larger sum of their
currency to equal what they want of yours. And if you want their currency, less than
one of your coins will be worth an entire one of their coins. These are called exchange rates. And vice versa. However, if there was no centralised currency
exchanges no one would know what each others currency is worth compared to their own. And therefore, you’d essentially go back to
bartering where you’d be trading based on the supply and demand of each individual rather
than the entire community which would be very troublesome as you could end up paying a much
higher price for another currency than it’s worth. So, how does a centralised currency exchange
work? Well, remember how earlier in the video I
mentioned that you should take note of the concept of barter? Well, essentially that’s exactly what’s happening
except with a monetary system. This is where supply and demand come into
place. I’ll say again what a centralised currency
exchange is. It’s a central place where people buy and
sell currencies. Therefore, at any time you want to buy a currency,
someone must be willing to sell you the currency at the rate you wished to buy it for, and
when you want to sell a currency someone must be willing to buy it from you for what you’re
willing to sell it for. What a centralised currency exchange allows
you to do is find people all over the world who’re wanting to purchase the currency you’re
selling or find people selling the currency you’re looking to purchase. Remember in our original barter example, when
you wanted something person A had but person A didn’t want anything you had, so you had
to go to person B to trade with them, then go back to person A? Well, a centralised currency exchange allows
you to do the exact same thing. But unlike when doing it yourself, you can
do this instantly. Let’s just say your home currency is the United
States Dollar, and you want to purchase an Australian Dollar from person A, however person
A doesn’t want to trade their currency for a United States Dollar, they want to trade
their currency for a New Zealand Dollar. So you go and find person B, who has a New
Zealand Dollar and just so happens to want the United States Dollar, so you make the
trade for your United States Dollars for their New Zealand Dollars then go back to person
A and trade them your New Zealand Dollars for what you originally wanted, the Australian
Dollars. Well, the centralised currency exchange allows
you to do this instantly. Basically, bartering by buying and selling
currencies you don’t want with people all over the world for currencies to eventually
be able to purchase the one you originally wanted to buy. So in conclusion, a centralised currency exchange
is exactly like the barter system. However, supply and demand is determined by
communities of individuals rather than individuals by themselves. Which therefore creates a standardised and
accepted value for each currency allowing for fair currency exchange between two or
more parties while also allowing a much faster way to obtain the currency you’re wishing
to purchase, or get rid of the currency you’re wishing to sell. Hey guys and girls 😀 Thanks for watching! If this video provided you with any value
and you feel that way inclined, please hit that subscribe button and like the video. If you’ve got any questions or just want to
say “Hi”, or have any video suggestions that you’d like to see on this channel feel free
to comment below 🙂 I look forward to seeing you in the next episode! Cheers 😀

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