Since the inception of the first cryptocurrency, Bitcoin, in 2009, the number of cryptocurrencies in existence has increased to over 1000. With a total market cap of around $236 billion, at the time of writing this article, trading in cryptocurrencies has become a lucrative option to make profits.
To start investing in crypto, you need to first have a reliable platform to buy cryptocurrency and then sell it for another cryptocurrency at a rate that can result in earnings for you.
This is where Cryptocurrency Exchange Platforms come in.
What is a Cryptocurrency Exchange Platform?
A Cryptocurrency Exchange is a platform where Bitcoins and other altcoins can be bought and sold using other assets such as fiat currencies or other cryptocurrencies. An Exchange can take commissions on the transactions or charge flat fees for their services.
The cryptocurrency that you buy using an Exchange can be sent to your cryptocurrency wallet. This is the safest way to keep your currency since Exchanges are susceptible to attacks by hackers.
You can think of a cryptocurrency Exchange like a Stock Exchange or a Currency Exchange at an airport or bank, depending on what functionalities it offers.
How does a Cryptocurrency Exchange work?
As stated above, a Cryptocurrency Exchange is meant for buying and selling of coins via fiat currencies or other cryptocurrencies.
To start using an Exchange, you have to register with the Exchange and undergo different verification procedures to establish your identity. This will create an account for you on the Exchange where all transactions occur and where funds are transferred.
You can use different methods of paying into and withdrawing from your account such as bank transfers, credit/debit cards, money orders, PayPal, etc. These depend on the Exchange that you use.
The value of the currencies is decided by the Exchange depending on the following factors:
- If there is a rise in demand for a particular currency, the price of that particular Cryptocurrency value also increases. This increase in price can be initiated by increased demand by small and medium level investors on the market. With more investors getting interested, the price increases even further.
- When a particular Cryptocurrency does not live up to its market potential or is overbought, its price goes down. The prices go down even more because of the panic asset drop after the initial decrease.
- The volume of trade in Crypto on a particular Exchange also affects the price of that Cryptocurrency on that Exchange.
- Human factors such as the news, political and economic events can also shape the price of a particular Cryptocurrency.
- Events such as an upgrade in source code or even server hacks can influence the price in a positive and negative manner respectively.
- The price can change in either direction depending on the volatility of the cryptocurrency. This refers to the price variation of crypto over a period of time.
A Cryptocurrency Exchange is comparable to a stock market.
Traders buy and sell crypto so that they can earn profits over the constantly changing rates using cryptocurrency pairs.
Ways to obtain Cryptocurrency Tokens on an Exchange
On an Exchange, trades are made based on whether you think the value of a particular currency is going to go up or down.
For instance, if you think that the price of Bitcoin is going to increase compared to USD in the future, then you should invest in Bitcoin using USD. This is known as a BTC/USD pair.
Depending on the Exchange, you can have different facilities. You may or may not have the option of exchanging Crypto for Fiat. You are also limited such that you can only invest in certain Crypto/Crypto pairs that particular Exchanges offer.
There are two ways that you can buy Crypto on an Exchange.
- By selecting the market order, you can buy and sell coin at the best available market price.
- By selecting limit order, you can ask the Exchange to trade coins at a price lower than the ask if you’re buying or higher than the bid if you’re selling.
When you place a limit order, the Exchange will add it to its order book until another trader matches the price. In this case, you are referred to as the maker, and the person on the other end of the transaction is called a taker.
You will be charged a transaction fees along with fees for withdrawing funds from an account. You might also be charged with an Exchange fee if the currency has to be converted from your bank account to be deposited into the Exchange.
Some Cryptocurrency Exchanges also offer Margin Trading.
- This is when you can borrow fiat currency from the Exchange to buy a certain crypto which you are expecting to increase in price.
- You can also borrow cryptocurrency to sell it and repurchase it later if you are anticipating a drop in price.
Types of Cryptocurrency Exchange Platforms
There are four basic types of Cryptocurrency Exchange platforms based on how they work.
Traditional Cryptocurrency Exchanges
Traditional Exchanges allow traders to sell or buy Cryptocurrencies at the current available market price. Depending on the platform, you can either deal in both Fiat and Cryptocurrencies or only Cryptocurrencies.
This working is similar to that of a stock market where the Exchange acts as an intermediary takes a fee for each successful transaction.
An example of a Traditional Cryptocurrency Exchange is Coinbase Pro.
Direct Trading Platforms
Direct trading platforms are also called peer-to-peer or P2P platforms. A seller can set a price range instead of a fixed price and buyers can contact them using an Over the Counter Exchange (OTC) system. This platform matches prospective buyers and sellers to each other.
The platform does not act as a middleman in this case; buyers and sellers interact directly with each other.
An example of a direct trading platform for crypto is Coinigy.
A Cryptocurrency broker is a good way for beginners to get into buying and selling Crypto.
These are online Exchanges that allow buyers and sellers to deal in Cryptocurrencies at a price affixed by the Cryptocurrency broker instead of a centralized Exchange. You will also have to pay a transaction fees for each transaction made by using a broker.
The transaction fees are slightly higher when a broker is used. However, the settlement period is smaller.
Cryptocurrency brokers are comparable to foreign Exchange dealers.
Shapeshift is an example of a Cryptocurrency Broker.
Cryptocurrency funds are pools of Cryptocurrency assets that allow you to hold cryptocurrency via the fund. They are managed professionally.
You don’t have to store cryptocurrencies or buy them directly since this is done by the fund itself.
They can be further divided into public traded funds (focus only on one asset holding), private buy-and-hold funds (any number of holdings) and hedge funds (pool of lightly regulated capital).
GBTC or Bitcoin Investment Trust is an example of a Cryptocurrency Fund.
Cryptocurrency Exchanges can also be classified based on whether or not fiat currencies are allowed as a mode of trade on these platforms.
Fiat Exchange Platforms
Fiat Exchange platforms will allow the trading of Cryptocurrencies against Fiat currencies. You can use conventional modes of payment to buy Crypto such as credit/debit card, cash, bank transfers, PayPal, wire transfer, etc.
Usually, a lot of verification procedures go into registering for these platforms since fiat currencies are government controlled. They also have less number of digital currencies to choose from.
A Fiat Exchange platform is necessary to start investing in Crypto. Examples of these are Bitfinex, Coinbase Pro, Kraken, Gemini, Coinmama, etc.
Pure Cryptocurrency Exchange Platforms
A pure Cryptocurrency Exchange will not allow any deposits in fiat currency. These kinds of platforms have a much broader array of digital currencies that can be bought and sold on them.
You cannot use bank transfers or credit/debit cards on these Exchanges. All deposits and withdrawals have to be made by using altcoins or Bitcoin. You also don’t need to have a lot of verification done to start using these platforms.
Examples of pure Cryptocurrency Exchanges are Binance, Bittrex, Poloniex, Cryptopia, Changelly, etc.
Pros and Cons of an Exchange platform
- There is no concentration of power. People directly run cryptocurrency Exchanges.
- Cryptocurrency Exchange platform sometimes come with low or no fees.
- Decentralized Exchanges have no central authority, meaning there is no interference from any Government. Decentralized Exchange platforms have a significant advantage, as transfers are made and booked instantly, without the need of any third parties.
Cryptocurrency Exchanges are not limited or bounded with a physical location, due to this Exchanges are difficult to regulate and to even shut down. For miners in countries where Cryptocurrencies are illegal, this seems to be pretty good news.
- Exchange platforms provide extensive support for wide range of Cryptocurrencies under on platform.
- Many reputed Cryptocurrency Exchange platforms ask for the creation of an account before the trading takes place. Several Centralized Cryptocurrency Exchanges require an official government ID for verification purposes. While Decentralized Exchange platforms allow users to create an account under any name, with no additional verification process.
- Exchange platform have longer trade times.
- The Exchange platforms are not monitored, although this might look positive to all the miners and investors, lack of support from parties when a Decentralized Exchange goes down cannot help you recover the funds that are stolen.
- Due to the increase in the number of traders using the Exchange platform, users might face errors now and then.
- Cryptocurrency Exchange platforms are associated with another major issue of currency rates. The currency rates appear to be different on every platform; therefore these platforms charge high commission while withdrawing funds.
Differences between a Centralized and a Decentralized Cryptocurrency Exchange Platform
Centralized Cryptocurrency Exchange (CCE)
Centralized Cryptocurrency Exchange(CCE) are the most common ways for transaction of cryptocurrencies. These Exchanges work as the trading platform that operates similarly to that of traditional brokerage or even stock markets.
CCE are platforms that are used in for buying and selling Cryptocurrencies online. These Exchanges are owned and managed by a single company, thereby having total authority over all the transactions. The complete authority only means that users have no direct access to private keys of their Exchange account’s wallets. A single company managing all the transactions has all the trust induced in the hands of the Exchange operator, who has the authority of approving or declining the transactions.
Decentralized Exchange Platform
A Decentralized Exchange Platform does not rely on any third party service to manage customer’s funds. Here, the trade takes place directly between users through an automated process.
There is no authority by companies, as these work by employing the Blockchain Technology.
As a single company, it does not manage funds here, Decentralized Exchange platform also does not hold any positions or information, it only serves as matching and routing layer for the trade orders.
The contradiction it has with the Centralized Exchange platform is that the users have to deposit their funds and Exchange issues that can be easily traded on the Exchange platform.
Centralized Cryptocurrency Exchanges allow user to trade fiat currency for cryptocurrency and vice versa.
Decentralized Cryptocurrency solely exchanges Cryptocurrencies.
Centralized Cryptocurrency Exchanges are prone to attacks. As of now, 30 cryptocurrency exchanges have been hacked in the last nine years.
Decentralized Exchange nodes are distributed, this makes it less risky when compared to Centralized Cryptocurrency Exchanges
Centralized Cryptocurrency Exchanges are regulated by Government institutions.
Decentralized Cryptocurrency Exchanges are distributed, which means Government and Regulators can’t interfere.
What to look in an Exchange Platform before joining?
The reputation of the Exchange: Check out the reputation of the exchange platform, is it secure enough, are they offering you with transparent information about your coins. Also, do check out the number of positive reviews it has when compared to other exchange platforms.
Fees: Every exchange carry their own fees for deposits, withdrawals and exchange rates. Put in a considerable amount of effort into researching, and make sure that you do not choose the one with the lowest fees but look for some quality and reliable services. Before settling to one exchange, have clarity on the fees charged by the exchange.
Payment Methods: It is essential to consider the payment methods that are accepted by the exchange platform. Do they accept wire transfer payments, credit cards or PayPal? The duration also tends to effect, based on the payment method you choose.
Security: It is essential that you choose an exchange platform, that is authentic and offers a secure platform. The recent cases of crypto platforms being hacked serve as severe warnings to investors and miners to look into the security protocol of exchange.
The User Interface and User Experience: One of the most prominent factors to consider in an exchange platform is the user interface and the experience it gives. As a beginner, you look for an intuitive interface and an excellent experience to make things seem more informative and more efficient.
Although the user experience is based on personal experience, different people seem to enjoy different interfaces.
Also Read : Here’s Some Cryptocurrency. Now Please Use It
Cryptocurrency Exchange Wallet
A cryptocurrency wallet stores digital code and grants access to the cryptocurrencies. However many believe that cryptocurrency wallet the cryptocurrencies, but they only act as keys to unlock the cryptocurrencies which are stored under a respective blockchain.
There are different types of cryptocurrency exchange wallets: physical and software wallets. Physical Wallets allow you to store the keys on devices like USB pen drives. Whereas, the software wallets be accessed on a smartphone, on computer or through a cloud service.
List of Cryptocurrency Exchanges
So now this question pops up, “Which is the best cryptocurrency exchange for me?”
As mentioned, there is a wide variety of different Cryptocurrency Exchanges available on the market currently. Furthermore, depending upon your requirements as well as the availability of certain Cryptocurrency Exchanges in your geographic location, there will be a different answer to the question stated above.
While, we cannot pinpoint your location, nor guess your Cryptocurrency Exchange requirements; we do have a list of the most well known and trusted Cryptocurrency Exchanges.
So, as you start your search for the best Cryptocurrency Exchange, start with our list given below:
If what you require for your cryptocurrency exchange is the ability to do crypto-to-crypto trading, then Binance might be the cryptocurrency exchange for you.
Based in China, Binance is available to cryptocurrency traders worldwide. Binance is a fairly new cryptocurrency exchange, however, with their great offerings and an extremely low trading fee, they have climbed their way to the current top cryptocurrency exchange platform in the world.
Binance has support for a huge selection of altcoins, including Bitcoin, Ethereum and etc to a total of approximately 350 different currencies. Furthermore, in addition to their extremely low trading fee of 0.1%, if you use their own Binance exchange coins (BNB – Binance coin), this fee can further be reduced to half.
Additionally, Binance offers a ton of different features such as trading pairs, security and liquidity. Binance provides support for both web, Android and iOS support, so you can access your cryptocurrency exchange no matter the platform you choose.
If Binance is not the cryptocurrency exchange for you, give Bittrex a try. Based in US (Seattle), Bittrex is a cryptocurrency exchange that enables you to trade in a large number of trading pairs. They support almost all major cryptocurrency, including Ethereum, Neucoin, litecoin, darkcoin, nextcoin and etc. Bittrex is known all over the world as one of the largest volume handlers of Bitcoin. Their service fee is reasonable at 0.25%.
One of the key features of Bittrex is the ease with which you can create account and start trading almost immediately. Bittrex has two different account types: Basic and Advanced. The only difference between these two is the withdrawal limit of 3 BTC and 100 BTC per day respectively.
The other feature that attracts a ton of different crypto traders to Bittrex is the fact that Bittrex offers two factor authentication and is compliant with the laws of the United States. This brings a certain trust factor to crypto traders.
To start using Bittrex, all you need is an email ID to register for Bittrex and you can immediately start trading cryptocurrency. However, to withdraw funds, you will need to finish a KYC process and need to submit your ID and phone number.
For those of you who are not new to the cryptocurrency trading world, Bitfinex might be the cryptocurrency exchange that you are looking for.
Headquartered in Hong Kong, Bitfinex has grown tremendously since their start in the year 2012. Now a days, Bitfinex is known as a reliable cryptocurrency exchange platform with a daily trading volume of about 1 billion US Dollars. You will get almost all available altcoins and they even include a very secure wallet service as well. The staffs regularly update the exchange and you can even raise support tickets which are usually resolved within a day.
Bitfinex is considered the best cryptocurrency exchange by most veteran crypto traders. Features such as margin lending, automated trading APIs, anonymous trading via OTC services and even mobile apps for both Android and iOS are one of the reason why Bitfinex is loved by all. However, If you are new to cryptocurrency trading, Bitfinex might not be the best cryptocurrency exchange platform for you. Bitfinex has a highly customizable interface which if you are new to the crypto trading world, can be very hard to navigate.
When it comes to cryptocurrency and especially, crypto trading, you will find a ton of different options for buying and selling your digital assets. The recent record price surge of Bitcoin to above 19,000 USD in 2017 has led to a widespread popularization of cryptocurrencies as a means to become rich overnight. While this does bring great exposure to the technology that is blockchain and cryptocurrencies in general; it also brings with it, a great amount of scams and fraudulent individuals who try to make a profit illegally.
This is the main reason why we always advise caution before you start investing in cryptocurrencies. You must study and research thoroughly before you start investing your money into cryptocurrencies. Additionally, careful research and study also have to be implemented on the different cryptocurrency exchange platforms that are currently available.
These exchanges are independent entities and are always subject to risks. Furthermore, different cryptocurrency exchanges have different features and with careful research, you can find the exchange that matches your needs. Once you find the cryptocurrency exchange that works perfectly for you, you can then go ahead and start trading.