With
the skyrocketing rise of Bitcoin over the years, digital currency
exchanges (DGEs) soon followed suit, becoming a place where cryptocurrencies could be bought, sold, stored and exchanged.
These types of exchanges can be market makers that typically take the
bid/ask spreads as transaction commissions for their services or simply
charge fees as a matching platform.
When choosing a currency exchange to do business with it’s important to consider some of these best practice tips:
History of trust
Find
out if the currency exchange has been around for a while and what sorts
of ratings and reviews it has received from customers through review
sites and forums. Look at the exchange’s track record to gauge its risk
profile, as well as its transparency regarding the quantity of coins it
maintains in cold storage.
Security profile
Look
into the DGE’s history to make sure there haven’t been negative
reports, suspect behavior or hacking attempts as security breaches are
known issues with many DGEs. One of the biggest currency exchange hacks
happened both in 2011 and 2014 at Tokyo-based MtGox. Hundreds of
millions of Bitcoins were stolen from people all around the world and
have yet to be recovered.
Trade volume
Look
at the exchange’s site traffic. High trade volume is an indicator of
the DGE’s market prominence and trustworthiness. Research a number of exchanges to figure out their proportional trading volume in the markets and trade with the largest exchanges for greater security.
Regulatory status
Find
out where the exchange is based as financial regulations differ from
country to country. Digital currencies are largely unregulated and
regulatory authorities in several jurisdictions have grown increasingly
outspoken about their intentions to implement digital currency-specific
laws. Some jurisdictions — including China, Japan and Australia — have
begun looking into ways to regulate digital currency exchanges. The
Australian government has already proposed a set of reforms which will
bring digital currency exchange providers under the remit of the
Australian Transactions and Reporting Analysis Centre (AUSTRAC). Such
bills are intended to strengthen Anti-Money Laundering (AML) procedures,
as well as the Counter-Terrorism Financing Act.
Accepted currencies
Digital
currency exchanges are specific about the cryptocurrencies and fiat
money they accept for transactions. Leading sites usually offer a
handful of exchange options using government issued currency and
altcoins.
Fee structure
DGEs
charge trade fees such as maker and taker fees, as well as deposit and
withdrawal commissions. To secure the best plan for your budget, it’s
important to compare the fee structure of leading cryptocurrency
exchanges prior to transacting.
From
Coinbase and Bitstamp to Kraken and Bitfinex, we’ve outlined some of the
main features of leading currency exchanges in the market:
- Coinbase
US-based
Coinbase is one of the largest and most trusted exchanges around. To
date, over 10 million users have been served across 32 countries with a
total of $50 billion in digital currencies exchanged. Fees for standard buy/sells are 1.49%, while credit/debit card buys are levied a 3.99% commission.
- Bitstamp
Bitstamp
is a European Union based Bitcoin marketplace. It allows people from
all around the world to safely make USD, EUR, Bitcoin, Litecoin,
Ethereum, Ripple or Bitcoin Cash deposits and withdrawals.
Transferring funds from your Bitstamp account to your card carries a flat $10 fee
for amounts up to $1000, while transfers above $1000 are levied a 2%
fee. A credit card purchase of any amount carries a 5% fee. Deposits and
withdrawals using Bitcoin, Litecoin, Ripple, Ethereum and Bitcoin Cash
are free of charge.
- Kraken
The
digital currency options available at Kraken are Bitcoin, Litecoin,
Dogecoin, Namecoin, Ripple and Ven. The exchange supports the euro, U.S.
dollar and South Korean won. The trade fees are tier-based: the higher the total volume you trade in your account, the lower your fee on subsequent trades.
- Bitfinex
Bitfinex
currently has the highest market share of all digital currency
exchanges. It is a full-featured spot trading platform for the major
cryptocurrencies such as Bitcoin, Ethereum, Ripple, Bitcoin Cash,
Litecoin and Iota, offering advanced trading tools like margin trading,
short selling and liquidity swaps. 99.5% of the exchange assets are
stored in cold wallets, while the remaining 0.5% of crypto assets are
accessible in hot wallets for day-to-day platform operations. Fees are dependent upon the deposit amount and currency of choice.
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