You may be new to the entire Crypto-Currencies concept! if so we recommend you to read the article ‘What-is-cryptocurrency‘ However the following quick guide is all about Cryptocurrency exchanges and the checklist you may use before joining an exchange.
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What is a cryptocurrency exchanges?
Cryptocurrency exchange (usually known also as bitcoin exchange) is a digital marketplace — a bit like eBay — where users buy, sell or exchange different cryptocurrencies for other digital currency or traditional currency like US dollars or Euro. It is important to note that not all crypto exchanges accept fiat money; some exchanges only allow you to deposit coins (most commonly Bitcoin) to purchase other alternative coins. Bitcoin is the most popular cryptocurrency that is offered on almost all crypto-exchanges, and represents the gateway to purchasing other coins.
Also some of them requires you to verify your ID and open an account especially to have access to fancy trading tools while some others platforms, that you can use for occasional or straightforward trade, do not require an account and allow you to remain anonymous.
We can distinguish tree types of exchanges:
- Trading Platforms – Websites that connect buyers and sellers and take a fee from each transaction.
- Direct Trading – They offer direct person to person trading where individuals from different countries can exchange currency. Direct trading exchanges don’t have a fixed market price, instead, each seller sets their own exchange rate.
- Brokers – Platforms where anyone can visit to buy cryptocurrencies at a price set by the broker. They are similar to foreign exchange dealers.
Your Checklist before joining an exchange
All exchanges are slightly different, however, the best exchange for one person, might not be the best exchange for another. The good news is that by asking yourself some simple questions you can quickly narrow down your options. We recommend the following checklist that takes a look at important factors for you to consider before making decision to select a crypto-exchange.
It’s important to do a little homework. You can search through reviews from individual users and well-known industry websites or ask questions you might have on forums like BitcoinTalk or Reddit. Here are a few things you should check:
First of all make sure the Exchange has a continuous feedback channel. If the Exchange is anonymous, this is sure to be a red flag. We have seen many examples of exchanges closing down without any refund for their users. Thus, in July 2017 the oldest Russian speaking Exchange BTC-E left the market, stripping its users of $95 mln. Three years ago, Mt.Gox was the major exchange. It lost $450 mln, went bankrupt and left the market.
Most businesses take complete hold of storing the assets. Thus it is reasonable to make sure its management is knowledgeable and responsible enough to protect your cash from hackers or technical bugs. Make sure the exchange has a so called cold storage that provides holding the main assets of the exchange offline. All major exchanges use cold storage with up to 80% assets there. Cold storage is essential for keeping most assets safely protected in case of an eventual malefactor attack.
Make sure the exchange site have a secure HTTPS protocol. It must be also offer secure logins along with two-factor authentication (2FA) or Email encryption and verification?
Where are you and/or the exchange located in
As Bitcoin exchanges and the regulations surrounding their use are very new in most countries. It is very impotent to Know where the exchange is based out of and typically It is recommended to buy cryptocurrencies in your home country.
Despite the exchange being based in your home country or not, the exchange may accept multiple currencies and some specific user functions, offered by this exchange, are only accessible from certain countries. Most of them will let you know during the signup process but make sure to check their terms of service for full access to all platform tools and functions in the country you currently live in.
You need to check what are available on the exchange as payment methods? Can you pay with wire transfer, cash, credit cards, PayPal, and so on. Use what works best for you at your convenience and make sure to consider your privacy levels.
Remember Purchasing via credit card will always require identity verification and higher transaction and processing fees and Purchasing via wire transfer will take significantly longer as it takes time for banks to process.
Fees can change overtime and can vary from exchange to exchange. Some exchanges charge additional fees on top of transaction fees. So You need to understand deposit, transaction and withdrawal fees and check periodically fee-related information on their websites and make sure that fees aren’t exorbitant compared to rest of the market.
Low transaction fees on relatively prevent your margins to be eaten away! , especially if you’re a constant trader. Usually we expect to encounter three types of fees:
- Network / Miner Fees – 0.00001 BTC : Fees that ensure your transactions are quickly processed by miners.
- Conversion Fees – 0.5% to 5% : Fees for exchanges to make money on your transaction (vary greatly depending on your method of payment).
- Maker / Taker Fees – 0.1% to 0.5%: Another way that exchanges make a profit.
Order book volume
An order book is simply a list of buy and sell orders on the exchange that are being offered. Most exchanges will publish their order book but some legit ones, might not have that function yet and/or has a smaller volume than other bigger exchanges. A higher volume order book is an indicator that people are using the exchange and the exchange has liquidity.
Couple other things to think about!
- To know How long before the currency will be sent to you after purchase.
- To check if the exchange offers ‘locked in’ pricing; meaning that the price you buy at, is the price you will be charged for even if the bitcoins take a few days to arrive.
- Exchanges rates. It’s not uncommon for rates to fluctuate up to 10% and even higher in some instances.
- Exchanges that are fully transparent will publish cold storage addresses or audit information on how to verify their bitcoin reserves. Bitcoin audits are a good way for an exchange to prove to customers that they have liquidity and can cover all bitcoin exchange sales, and aren’t running a fractional exchange.
- Custom Support Quality. Having a responsive customer support would save you lots of time. Issues on your verification process, deposit/withdrawals, funds reflection and trading orders should be solved quickly by the exchanges, or it could cost compromise you time, money and well-being.
Not becoming a victim should be a high priority and this means avoiding any scam exchanges that are designed to steal from you. Beside this, Crypto-exchanges involve risks resulting from the key feature of cryptocurrencies: Exchanging electronic money means that a person holding the private key to the wallet owns the coins in it!
While you keep cryptocurrency in your wallet, there is no need to trust anything to a third party. As soon as you transfer cash to the wallet of the exchange, this exchange, in fact, becomes its owner. It is the exchange that also becomes responsible for its safety. The only thing you will have to do is trust the service.
Our Selected list of cryptocurrency exchanges
Coming very soon !
We hope this article helped you have an idea about crypto-currency exchanges.
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