What’s a cryptocurrency exchange?
A cryptocurrency exchange, or a crypto exchange, is a platform where users can buy and sell different cryptocurrencies and digital assets. Crypto exchanges offer a marketplace for consumers to store cryptocurrency and learn about market values and price trends for different cryptocurrencies.
In the early days of crypto, users could only either acquire cryptocurrencies by mining or arrange crypto transactions on forums. But today, many crypto exchanges offer diverse digital assets, including cryptocurrency, dApps (decentralized applications), NFTs (non-fungible tokens), and more.
These crypto exchanges vary based on their products and services. While some may provide better services for cryptocurrencies, others may be more suited to NFTs. Let’s look at a few factors to consider when choosing a crypto exchange.
What to look for in a crypto exchange
Cryptocurrencies are volatile investments, so you should consider various factors when selecting a crypto exchange and taking part in DeFi (decentralized finance). An ideal crypto exchange meets users’ objectives, budget, risk tolerance, and security needs.
It's important to remember that crypto exchanges have various security levels and associated transaction fees, while some crypto exchanges are only available on portable devices like smartphones and laptops with mobile apps. Here are a few characteristics to look for in a crypto exchange:
Not every crypto exchange supports all cryptocurrencies available in global circulation. If you're looking for prominent cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), you'll be hard-pressed to find an exchange that doesn't have them. However, emerging altcoins, cryptocurrencies with smaller market caps, or meme coins may need more research.
There are generally two types of exchanges––those that offer as many assets as possible and those that are more selective. If you choose the more selective exchange, it’s less likely you will invest in a scam, but they may also limit your upside.
Technical jargon in crypto can confuse beginners looking to venture into investments. As a result, it’s important to consider the user experience and interface for each crypto exchange. Some crypto exchanges may cater to new users, while others may suit more experienced crypto enthusiasts.
More advanced traders may require advanced features such as limit orders, leveraged trading, and more. Some platforms are more catered to these investors. For the average investor who just wants to buy and sell, each exchange should support this
If you want to purchase, sell, or exchange your cryptocurrency, the crypto exchange you select should have sufficient trading volume to ensure that your assets are liquid, which means you may sell them whenever you wish. The most popular crypto exchanges often have the highest trading volumes.
When a crypto exchange experiences a high level of trading volume, you can buy or sell coins at the best price available to you at that moment. Because cryptocurrency rates shift so frequently, using a smaller exchange with less trading volume may make you pay a premium than larger crypto exchanges.
Fees are another factor to consider when choosing a crypto exchange. It may come from transactions, processing, or gas. Higher fees may be a reasonable compromise for your additional benefits; for example, larger cryptocurrencies provide better insurance and security.
Fees can be predetermined, but in most cases, they're usually a portion of your transaction. Some crypto exchanges levy variable costs depending on a cryptocurrency's price volatility. Fees are typically imposed on each transaction and might vary depending on who you buy it from. You could trade directly with another user or initiate and perform a transaction via a brokerage. Either way, you'll have to pay different fees depending on your approach and the cryptocurrency you want to buy or sell.
With assets worth billions of dollars in their reserves, crypto exchanges are vulnerable to hacks and cyberattacks. As a result, an insurance policy is a vital factor when choosing a crypto exchange.
Insurance coverage varies between crypto exchanges, so it's essential to read the fine print. Some exchanges provide insurance against cybercrimes, theft, robbery, acts of dishonesty, and more. Therefore, you should always read a crypto exchange's FAQ and terms and conditions before signing up.
Cryptocurrency, blockchains, and crypto exchanges aren’t regulated by any centralized authority like a bank or a government, making crypto assets less safe than traditional bank deposits or fiat currencies. Some cryptocurrency trading platforms, such as Coinbase and Gemini, maintain your balance in USD in bank accounts insured by the Federal Deposit Insurance Corporation (FDIC). However, FDIC insurance doesn’t cover all crypto holdings.
As a result, you'll want to ensure the crypto exchange you're trading on has top-notch security and insurance coverage. Check whether the exchange has a native crypto wallet or provides access to cold storage methods to safeguard your holdings.
Central authorities extensively regulate traditional stock exchanges like the New York Stock Exchange. In contrast, crypto exchanges exist as centralized exchanges (CEX) and decentralized exchanges (DEX).
A CEX is a platform developed and managed by an organization, which is responsible for monitoring and running the exchange according to its rules. A DEX, on the other hand, is a platform that functions without the need for any intermediaries. Instead, a worldwide network of computers manages and runs the exchange by verifying transactions through a blockchain. An individual or organization may create a DEX but can’t control it once it's set up on a blockchain.
Your country of residence may restrict you from buying and selling cryptocurrency on some crypto exchanges. For example, China currently forbids its citizens from trading cryptocurrency or using crypto exchanges, while Ecuador uses Bitcoin as a legal tender. There’s a great deal of legislative ambiguity around cryptocurrencies in the U.S., and several states have implemented their own legislation.
If you want to know more about your country's laws and regulations on the use of cryptocurrency, you can head to any crypto exchange's website and read its FAQs or terms of service.
Crypto exchanges usually allow you to store your coins in their native crypto wallets for safekeeping. This is an excellent option for newcomers who aren't ready to handle storage independently. After you've learned the tricks of the trade, however, you can consider more advanced storage options or create your own personal wallet for your digital currencies. That’s because if the exchange goes bankrupt and possesses your funds, you could lose the money.
What’s an exchange fee?
Trading cryptocurrencies isn’t free. To trade efficiently and make the most effective transactions, crypto traders need to know the types of fees crypto exchanges impose on transactions. When determining fee structures on a crypto exchange, transactions are often categorized into maker fees and taker fees.
A maker is an individual or group that establishes a market on a crypto exchange by selling coins. At the same time, a taker is any individual or group that buys it off the market. Both parties pay exchange fees. However, makers tend to have low fees.
What are the most popular cryptocurrency exchanges?
The crypto market hosts hundreds of crypto exchanges for users to interact and trade their products.
Let’s look at the most popular crypto exchanges in the world based on their CoinMarketCap exchange score, which is a method of ranking and scoring exchanges based on their traffic, average liquidity, trading volume, and trust level. Once assessed, crypto exchanges are scored between 0.0 and 10.0.
Here are the most popular ones (at the time of writing):
- Binance (9.9)
- Coinbase Exchange (8.1)
- FTX (8.0)
- Kraken (7.6)
- KuCoin (7.3)
- Binance.US (7.2)
- Gate.io (7.2)
- Bitfinex (7.0)
- Huobi Global (6.8)
- Gemini (6.7)
There’s no objective method to identify the "best crypto exchange.” Each person has unique requirements that can be fulfilled by different crypto exchanges. While you may prefer specific cryptocurrencies that only a few exchanges offer, someone else may prefer crypto exchanges that offer great offline support and cold storage options. There are many choices out there, with more releasing every day, so you'll never be short of options.
Remember, the factors to consider when looking for good crypto exchanges are coins offered, user experience, features offered, liquidity, fees, insurance, security, regulatory measures, accessibility, and storage. Once you've browsed through a few exchanges and narrowed down your favorites, compare them using the above criteria.
Centralized platforms might be your best bet if you want to get started with crypto exchanges. They’re faster, more efficient, and store your coins for you. Another platform that’s fast and efficient is Worldcoin, which is a new crypto company that aims to provide each individual on the planet with a free share of its cryptocurrency. No exchange fees. No maker fees. No taker fees. Simply claim your free share and involve yourself in a growing digital economy!
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