An estimated 46 million US citizens own a share of Bitcoin.
Since it was launched, Bitcoin has grown massively in popularity. It’s now used by people all over the world, and many have made huge returns on their investments. If you’re interested in the crypto space, there’s a lot you need to learn first.
One of the most important steps is selecting Bitcoin exchanges to use. There are plenty of them out there, so how do you know which ones are reliable, and which ones to avoid?
In this guide, we’ll cover everything you need to know so that you can determine what exchanges are best for you. Keep reading for more.
What Is a Bitcoin Exchange?
In simple terms, a Bitcoin exchange is where most people go when they’re interested in buying and selling Bitcoin. It’s a platform that facilitates transfers between fiat currencies and cryptocurrencies – some also offer other digital assets.
All exchanges typically offer a wide variety of crypto assets. Users can buy, sell, and exchange these assets, and the exchange they’re using charges a fee for each trade.
Like everything in the crypto space, exchanges started out fairly basic. The first Bitcoin transaction for fiat currency was done in 2009 through PayPal on NLS (New Liberty Standard), which was the only Bitcoin exchange at the time. Over the years, more have been launched, offering a wide range of new features.
Cryptocurrency brokerages operate similarly to a stock exchange, but an individual cryptocurrency can be traded on multiple exchanges at once. Because of this, each exchange has its own “mini-market.” This causes slight variations in the prices of cryptos on different exchanges – but they all remain close to the global price reference.
The main purpose of an exchange is to provide a secure, reliable place for people to make cryptocurrency transactions. It’s possible to trade crypto with people directly, which can sometimes get you a better deal. When doing this, however, you probably won’t know the source of the crypto you’re purchasing, which presents risks in terms of pricing, liquidity, and speed.
How Do Bitcoin Exchanges Work?
You might feel like you’re late to the world of crypto, but that’s not the case. With how much is going on in the crypto space, things can get very confusing. When looking at different exchanges, there are certain services that you should look for.
Direct Cryptocurrency Selling
While many people initially think about using an exchange to buy Bitcoin, you also want to be able to sell it if you need to. After all, if you can’t sell it, you won’t actually be able to make any Bitcoin trading profits.
You can also find Bitcoin ATMs across the US that allow you to withdraw your Bitcoin as cash. Check out the ByteFederal homepage to find one near you.
Crypto Trading
A brokerage works as an intermediary between buyers and sellers. As such, exchanges don’t directly sell assets to users. Bear in mind that the prices may fluctuate and each transaction will have a fee – though it’s usually very small.
Crypto Storage
For many people, a good Bitcoin trading strategy involves holding on to crypto for a long time allowing it to grow in value. Most crypto exchanges will allow you to store your crypto within a custodial wallet. While this may be ideal in the short term, for long-term storage it’s highly recommended to use a soft or hard wallet.
Crypto Lending
This is something that’s appearing on more platforms, allowing you to take out a crypto loan, similar to a bank loan. The exchange will profit from the interest on these loans, and they may offer various pairs such as BTC/USD, ETC/USD, and USDT/USD. People tend to favor high-volatility pairs as they present a greater opportunity.
Types of Cryptocurrency Exchanges
Over the years, many more options have become available. Each new exchange that has opened has presented new opportunities and benefits. There are plenty of options for exchange platforms, but they can all be placed into one of two categories.
Centralized Exchanges
A CEX (centralized exchange) is one that’s owned by an exchange operator. This is a single entity that focuses on the smooth operation of the trading platform.
CEXs are generally easy to sign up for and use, making them simple for beginners. They do, however, include certain fees, and they may have some limitations in place. This can be things such as only allowing users to buy crypto with another crypto, whereas some others may only allow purchases with fiat currency.
Decentralized Exchanges
One of the key concepts behind Bitcoin and blockchain technology as a whole is decentralization. DEXs (decentralized exchanges) work on this principle, as there’s no single entity overseeing the operation – all trading is done peer-to-peer.
These may not be the best for beginners, as users typically require some degree of knowledge of how blockchain technology works. There’s also some risk in terms of fraud and mismanagement, as there’s no central authority that can protect users if anything goes wrong.
Factors to Consider When Selecting Bitcoin Exchanges
Even if you already know what type of exchange you want to use, there is still plenty of CEXs and DEXs to choose from. To narrow things down, there are various factors that you can consider.
Security and Safety
In the world of crypto, exchange platform security is always one of the most important elements. With all this new technology, there come risks, and when money is involved, you need to be very careful.
One of the biggest threats out there is hacks. Various exchanges have been attacked over the years, with millions of dollars worth of crypto being stolen. No exchange is completely immune to such attacks, but some are certainly safer than others.
One of the first things to do is look at the history of an exchange. If you find one that has suffered hacks in the past, be wary. One that has never had such issues likely has better security.
Look for things like 2FA (two-factor authentication), which should generally be a minimum. You should also check what kind of protection an exchange offers against things like phishing scams and other theft attempts. Biometric login can also be ideal to help keep your funds more secure.
Some exchanges now have bounty programs. With these, ethical hackers can highlight any vulnerabilities so that an exchange can fix them before a hacker takes advantage.
An exchange that employs KYC (know your customer) standards are also ideal. They require all users to sign up using a government ID so they can better monitor any malicious activity.
What Coins Are Available to Trade?
Bitcoin is by far the most popular cryptocurrency in the world, but it might not be the only one you’re interested in. There are currently more than 19,000 cryptocurrencies in existence. Almost all exchanges will offer the biggest ones such as Bitcoin, Ethereum, and XRP, but if you want to trade any smaller-cap coins, you should check what different exchanges offer.
Before getting ahead of yourself, bear in mind that smaller-cap coins may be riskier. With crypto, there’s generally an element of “high-risk, high-reward,” so while they present the best chance for profits, they may also present the best chance for losses.
Fiat Currency Support
If you don’t have any crypto, you’ll need to use an exchange that supports fiat currency. Even if you have some Bitcoin already, you might not want to swap it for another crypto. To keep building your crypto portfolio, an exchange that allows you to buy with fiat is the solution.
Be Aware of the Fees
All exchanges have fees, but these can vary. It’s worth looking into what you’ll need to pay for the services that you want to use so you can get a better deal. Some typical fees that you’ll find are for things like purchases, withdrawals, trading, and balance transfers.
In most cases, your fees will relate to your trade volume over the previous 30 days. A higher trade volume results in lower fees. This is a brief guideline on some of the fees for the biggest exchanges in the US:
- Binance.US: 0.1% – 5%
- Coinbase: 0.5% – 4.5%
- Crypto.com: 0% – 2.99%
- Kraken: 0.9% – 2 %
- BlockFi: 0%; spread of 1%
- Bitstamp: 0% – 0.5%
Note that these fees can vary depending on the payment method and type of transaction.
Ensure They Have Sufficient Liquidity
The liquidity of an exchange is what allows you to buy or sell crypto without a sizable impact on the price. A more liquid exchange allows you to sell an asset as close to the asking price as possible. Healthy liquidity ensures you get a reasonable rate for your transactions, and helps them happen quickly.
Regulation Compliance
Something that can vary between exchanges is where they’re licensed to operate. Some are only available in specific countries, so if you’re in the US, you’ll only be able to use exchanges that are available in the US.
At this point, crypto isn’t nearly as regulated as the stock market, but that is changing quickly. Authorities such as the FCA (Financial Conduct Authority) and BaFin (German Federal Financial Supervisory Authority) license and regulate crypto exchanges in Europe. The US will likely follow suit soon.
Some exchanges have been properly audited, and this is confirmed by the Service Organization Control reports. It’s generally a good idea to go with one of these exchanges over one that hasn’t been audited.
Insurance Policy
If an exchange does get hacked, you might lose any crypto you have on there. To ensure your funds are protected, you should go with a platform that has a suitable insurance policy in place.
Due to the increase in crypto scams in recent years, exchanges are working harder to ensure their users are safe. Each exchange will have a different policy, so take the time to look through these so that you know what kind of protection they have.
Rewards
The main purpose of exchanges is to allow users to buy and sell crypto, but some also offer certain rewards to their users. These vary between platforms, but a typical type of reward would be some bonus crypto if you purchase over a certain amount.
Some exchanges also offer staking services, allowing you to stake your crypto for a reward. This will be a specified percentage of the amount you stake.
Some of the Best Crypto Exchanges Available
Even with all of this information, it can still be difficult to find the best Bitcoin exchange for you. You should start by looking at some of the most popular exchanges around.
Binance
This is the largest crypto exchange in the world in terms of trade volume. It offers lower fees than most, and these decrease as your trade volume goes up. It’s fairly simple to use and offers various additional features such as staking, crypto loans, and a P2P market.
Coinbase
Coinbase is another very popular exchange, and it’s known to be quite easy for beginners to use. You can find plenty of educational resources on the platform so you can learn more about trading crypto. There has also never been a hack on Coinbase, making it one of the most secure options available.
Gemini
Gemini is one of the most regulated exchanges around. It’s ideal for experienced users as well as beginners. You can choose from a large number of coins and other products such as NFTs.
Crypto.com
Crypto.com offers multiple security layers to keep user funds safe. It has a non-custodial DeFi wallet that you can use to safely store your crypto. You’ll also find other services such as margin trading and crypto loans.
The Right Exchange for You
When it comes to selecting Bitcoin exchanges, it ultimately comes down to personal preference. You need to think about what you want from an exchange, then compare the different platforms available.
Consider the features you want such as crypto loans, choice of coins, and regulation compliance. Above all, make sure you only use exchanges that you deem to be secure so that you don’t lose the money you invest.
For more tech articles, check out some of our other blog posts.
