How to spot the next Bitconnect.Don't fall victim.Inform yourself.

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.