How do exchanges differ from cryptocurrencies?

The distinction between exchanges and cryptocurrencies fundamentally lies in their definitions and functions within the financial ecosystem. Exchanges serve as platforms or marketplaces where individuals can buy, sell, or trade various assets, including cryptocurrencies. They facilitate these transactions by providing the necessary infrastructure for users to engage in trading activities.

On the other hand, cryptocurrencies are digital or virtual currencies that utilize cryptography for security and operate on decentralized networks based on blockchain technology. They represent a form of currency but are not physical assets themselves; rather, they exist purely in digital form.

The clarity in this difference is crucial—while exchanges are the venues facilitating the trade of various assets, including cryptocurrencies, the cryptocurrencies themselves are the assets being traded. Understanding this relationship allows for a better grasp of how digital currencies function within the broader financial marketplace.