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 currently 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.
These platforms offer direct person to person trading where individuals from different countries can exchange currency.
P2P (peer to peer) exchanges are like middlemen, connecting buyers and sellers to let people trade however they want. It is basically a place for people to advertise the coins they are selling to anyone who wants to buy.
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. These are websites that anyone can visit to buy cryptocurrencies at a price set by the broker. Cryptocurrency brokers are similar to foreign exchange dealers.
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.
Hybrid cryptocurrency exchanges, which are known to be the next generation crypto trading marketplace. They aim to merge the benefits from both centralized and decentralized exchanges.
To put it in more detail, hybrid exchanges seek to provide the functionality and liquidity of a CEX with the privacy and security of a DEX. Many believe such exchanges are the real future of cryptocurrency trading experience.
Qurrex is a hybrid crypto exchange that is currently very popular.
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.
Also read, What is a cryptocurrency exchange?
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.
Centralized cryptocurrency exchanges are similar to traditional stock exchanges. The buyers and sellers come together and the exchange plays the role of a middle-man.
In crypto terminology, “centralized” means to trust somebody else to handle your money. Among different types of cryptocurrency exchanges, one of the main issues with centralized cryptocurrency exchanges is their vulnerability to hacks.
Examples of CEX include Coinbase, Bittrex, Binance, Bitfinex etc.
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.
A decentralized exchange does not rely on a middle-man to hold your funds. It is a marketplace where buyers and seller come together and process the transactions directly between one another.
In other words, DEXs facilitate peer-to-peer trades. Decentralized cryptocurrency exchanges are harder to hack. However, problems with DEXs may include low volumes and low liquidity due to lack of popularity at the moment.
Examples of DEX include IDEX, Waves DEX etc.
Fiat/Crypto Exchange: Centralized Cryptocurrency Exchanges allow a user to trade fiat currency for cryptocurrency and vice versa.
Decentralized Cryptocurrency solely exchanges Cryptocurrencies.
Security: 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
Regulation: 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.
Verification Requirements: Many exchange platforms emphasize some form of ID verifications to make deposits and withdrawals. Some exchanges allows users to be anonymous.
Although verification may take a few days and becomes tedious, it is advisable to be patient while adhering to all the steps. This way you are spared from punitive scams and issues with money laundering.
Geographical Restrictions: Certain exchanges only operate from specific geographical locations. Make sure the exchange you opt for supports your country and works in the language you are comfortable.
Also, ensure that the exchange does not restrict you with any features and provides the full suite for an efficient trading.
Exchange Rate: Different exchanges have different rates. The thumb rule is make a survey in all major and reputed exchanges and settle for an exchange that you may find comfortable for your budget.
Sometimes a trade-off would be required. An exchange may work out a little pricier but provides great and innovative features that ease your trading. A good exchange should be well balanced between usability and fees levied.
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 a computer or through a cloud service.
Cryptocurrency wallets are broadly classified into exchange wallet and off-exchange wallet. Exchange wallets are those infrastructures that are provided natively by the exchange of your choice. Similar to any wallet, they store public and private keys along with crypto balance.
Exchange wallets are generally ‘hot’ meaning they are eternally connected to the internet. They suffer from a weakness that they are prone to attacks from hackers. Although exchanges promote highest security features, it is generally recommended not to retain large funds in exchange wallets.
A best practice is to transfer funds from exchange wallets to off-exchange wallets. Off-exchange wallets provide better security and can operate in ‘cold’ mode. Cold mode negates the need to be eternally connected to the internet thus thwarting potential attacks to your funds.
Some reputed 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.
- A platform widely available, very cheap to transact, available worldwide.
- Provides multi-language support.
- Blessed with high liquidity.
- Backed by an established team.
- Offers bounty and reward programs.
- No fiat trading, limited payment options.
- Android app reported being buggy.
- There are delays withdrawing some digital coins.
- Two-factor authentication for Chinese phone numbers only.
- Suffers from an unstable future due to Chinese regulations.
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.
- Fast signup and verification.
- Better support and security than most.
- Great platform if you are into arbitrage.
- Provides support for 1 minute charts, a possible first.
- There is rarely any interruption of the actual service.
- The liquidity is sometimes way below average.
- Does not support margin trading.
- Trading fees are a bit high and do not offer any discount to users.
- There are worries of lack of accountability and full transparency.
- Customer support is sometimes slow to respond.
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 reasons 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.
- Anonymous mode of working possible.
- Boasts of unlimited withdrawal.
- Enjoys high trading volume.
- Many payments options available.
- Supports an in-house mobile app.
- There was a security compromise resulting in a hack.
- Users have reported freshly arising payment problems.
Backed by trusted investors and used by millions of customers globally, Coinbase is one of the most popular and well-known brokers/trading platforms in the world. The Coinbase platform makes it easy to securely buy, use, store and trade digital currency.
It offers bitcoin and ethereum trading with low fees with the interface being very friendly and intuitive. One of the reasons why Coinbase is so popular is because of its extensive deposit solutions. It partners with many banks and payment services so you can deposit fiat via EFT payments, credit cards and PayPal.
- Provides two-factor authentication and multi-signature security option to prevent unauthorized manipulation of funds
- A wide variety of fiat deposit and withdrawal options.
- Good reputation, security, reasonable fees, novice-friendly and stored currency is covered by Coinbase insurance.
- Offers online and mobile wallet services.
- Provides two-factor authentication and multi-signature security option to prevent unauthorized manipulation of funds
- Issues with customer support, limited payment methods, limited countries supported and non-uniform rollout of services worldwide.
- Coinbase accounts are monitored and you do not stay anonymous.
ShapeShift is the leading exchange that supports a variety of cryptocurrencies including Bitcoin, Ethereum, Monero, Zcash, Dash, Dogecoin and many others. Shapeshift is versatile in the fact that those who want to make instant straightforward trades can do so from an off-exchange wallet.
ShapeShift does not allow users to purchase digital coins with debit cards, credit cards or any other payment system. The platform has no fiat support and only allows for the exchange between bitcoin and the other supported cryptocurrencies.
- The mobile app is pretty average in usability, supports no fiat currencies, limited payment options and tools.
- Good reputation, beginner friendly and a host of cryptos available for exchange with reasonable prices.
- Has high privacy standards.
- Normally, quick and easy transactions.
- The mobile app is pretty average in usability, supports no fiat currencies, limited payment options and tools.
- Ambiguity around deposit limits and transaction speeds.
Also read, Is Cryptocurrency legal?
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 number 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.