This guide to details about what a cryptocurrency exchange is, how to choose the best cryptocurrency exchange and an overview of the best crypto exchanges
Cryptocurrencies are getting popular with every passing day. The number of currencies in the markets has also been on the rise. As of this writing, there are over 2,000 cryptocurrencies which users can buy, sell and trade. As the number of cryptocurrencies rises, the demand for the currencies is also rising - this is leading to a rise in cryptocurrency exchanges across the world.
Established names are setting up new businesses while new entities are also starting-up in this sector. Let us take a closer look at what cryptocurrency exchanges are and why they are important in the world of cryptocurrencies.
Let us begin by addressing the most basic question: What is a cryptocurrency exchange?
A cryptocurrency exchange is a critical part of the cryptocurrency ecosystem. In the simplest of terms, a cryptocurrency exchange can be explained as the stock market of cryptocurrencies. It is a place where various cryptocurrencies are listed and interested traders can easily buy, sell or trade their cryptocurrencies to make profits on their currency’s market price.
This guide to cryptocurrency exchanges will help you understand, in detail, what a cryptocurrency exchange is - the kinds of cryptocurrency exchanges that there are, how to choose the best cryptocurrency exchange - as well as give you an overview about some of the best crypto exchanges out there.
Also Read: Beginner's Guide to Cryptocurrency
While we began by comparing cryptocurrency exchanges to stock exchanges - there is a slight difference. While in a stock exchange, you can buy stocks by paying fiat money, when it comes to cryptocurrencies, you can do that - as well as get another option. Some cryptocurrency exchanges allow you to trade one cryptocurrency for another! Broadly speaking, there are two types of cryptocurrency exchanges:
Fiat-based cryptocurrency exchanges
Let us take a detailed look at each of these types of cryptocurrency exchanges and understand their benefits and their functioning.
Fiat exchanges are cryptocurrency exchanges which allow you to buy cryptocurrencies in exchange for fiat money. Basically, in a fiat-based exchange, you can pay the exchange and buy cryptocurrencies in exchange for fiat money (USD, EUR, JPY, etc). A fiat-based exchange allows the users multiple and traditional means of payment such as bank transfers, credit cards, etc. Moreover, these exchanges also offer a number of withdrawal options where users can directly cash out their profits into their bank accounts with ease.
Fiat-based cryptocurrency exchanges usually tend to be more popular than altcoin exchanges because beginners prefer to use these exchanges.
Altcoin exchanges, also popularly known as ‘pure cryptocurrency exchanges’ or ‘crypto-to-crypto exchanges’, are cryptocurrency exchanges which do not deal in fiat money. In order to trade on these exchanges, you need to purchase Bitcoins from a fiat exchange (or a wallet or some other source) and then transfer it to the altcoin exchange.
These exchanges allow you to trade your Bitcoins for a number of altcoins. Most of the popular altcoin exchanges list hundreds of altcoins (alternative cryptocurrencies) which the traders can easily trade. While they may seem inconvenient to use for beginner level users, these exchanges tend to have much more trading options when compared to fiat-based cryptocurrency exchanges.
However, the market trends are changing and some of the biggest altcoin exchanges in the world are now looking forward to introduce fiat support as well.
While fiat exchanges seem to be convenient to use and are preferred by a large number of users, one may wonder why there is a need for altcoin exchanges at all. Especially considering that the trends in the markets are changing, it is important to highlight why altcoin exchanges continue to be relevant.
Most popular fiat-based exchanges offer only a limited set of cryptocurrencies. Let us take into account the case of Coinbase, the biggest exchange in the United States. Coinbase offers only four cryptocurrencies as of this writing: Bitcoin, Bitcoin Cash, Ethereum and Litecoin. However, a number of US-based cryptocurrency traders might want to buy Ripple (XRP) - which is a popular cryptocurrency. However, Coinbase does not offer it to them.
In this case, their only option is to resort to a crypto-to-crypto based exchange such as Bittrex or Poloniex, register an account on these exchanges, transfer currencies from Coinbase to Bittrex, trade Bitcoins for Ripple and wait for the price of Ripple to grow. Once the price reaches a desired target, the traders can again sell their Ripple holdings for Bitcoin - and have it sent from Bittrex to Coinbase, from where they can encash their Bitcoins at a profit.
The biggest problem with altcoin exchanges, however, is the fact that there are multiple levels of fees involved. The user first has to transfer Bitcoins from Coinbase to Bittrex, where he would be charged by Coinbase, following that he has to purchase Ripple on Bittrex where Bittrex would charge him with some fees on the purchase. When he sells his Ripple for Bitcoin, he would again be charged with a small fee. Yet another fee would be placed on the user by Bittrex when he finally transfers his Bitcoins from Bittrex to Coinbase. Finally, one last fee would need to be paid by him when he withdraws money from Coinbase.
These multiple levels of transaction fees are the biggest obstacle when it comes to altcoin exchanges and this is the primary reason why altcoin exchanges are now moving towards supporting fiat currencies.
Now that you understand the two kinds of cryptocurrency exchanges that there are, let us take a detailed, closer look at how to choose the best exchange. There are a number of factors that need to be considered before you finally decide on beginning to trade on a cryptocurrency exchange. Let us take a closer look at some of these factors that you need to keep in mind before deciding on a cryptocurrency exchange:
One of the most critical factors when it comes to selecting a cryptocurrency exchange is the location that it is based in. If you are living in Japan, it is rather important for you to rather look for an exchange based in or around your country rather than going for an exchange based in the US. This has multiple advantages because a local exchange would allow you to trade in local currencies, which would save you on currency-conversion costs - and foreign exchanges may stop services at any time, such as the recent case with Kraken in Japan.
This is a major determining factor in the selection of a cryptocurrency exchange. Users would rather prefer to join an exchange which has low trading fee. Most cryptocurrency exchanges these days have no deposit fee - but have a withdrawal, trading and transfer fee. However, the fees involved in crypto-trading is going down, thanks to innovative technologies such as the lightning network coming out. Moreover, some exchanges are using their own cryptocurrencies to reduce the fees.
Users should always look for an exchange which has a good track record when it comes to security. An exchange that follows all proper security protocols and one which has dealt with security threats in a good way in the past. Cryptocurrency exchanges getting hacked are quite normal of late - and every year there are several hacks taking place, resulting in hundreds of millions of dollars being lost.
Privacy is a major factor when it comes to choosing a cryptocurrency exchange. Some exchanges tend to offer a higher amount of privacy, while in others you need to register multiple identity proofs including personal information such as your passport. Moreover, some exchanges might even hand over your data to the government as and when required.
The cryptocurrency exchange that you want to go for must have the coins that you want to buy. If you want to buy Ripple but end up joining an exchange which does not support the currency, then this was an exercise in futility. One must always check out the list of coins supported by the exchange before going for the exchange. However, many a times users tend to join multiple exchanges because of the coins supported by each of them.
Type of Exchange:
As discussed above, the kind of exchange that you go for also matters a lot. You need to decide which fiat-based exchange you want to join - as well as if you want to join an altcoin exchange at all. This is a major decision which has to be made depending on the currency that you want to buy.
The kind of payment options that your preferred cryptocurrency exchange supports vs the payment options you prefer are also an important deciding factor. There are some people who prefer to make payments directly via their bank account while there are others who would rather use credit card payments to purchase their cryptocurrencies. Moreover, there are a number of other options such as PayPal, etc. The ideal cryptocurrency exchange must offer a large variety of options for the use to choose from.
While payment options are quite important, withdrawal options are even more important. This is how the actual profit reaches the end-user. An ideal cryptocurrency exchange needs to offer multiple payment options. These can be bank transfers, withdrawals to payment wallets, supporting other forms of payment such as PayPal, etc. Ideally, a user chooses a cryptocurrency exchange based on their preferred withdrawal option.
Last but not the least, customer support is a crucial determining factor when it comes to selecting a cryptocurrency exchange. Customer support is quite valuable in case of any emergency where you are unable to access your account due to any reason. Moreover, if you are having questions about trading and are confused about how to use certain tools provided by the exchange, customer support is always of good use. An exchange which has a quick turnaround time for customer support queries gets a greater preference.
With the knowledge of what a fiat-based cryptocurrency exchange is, how you should choose one, as well as what its benefits are, let us take a look at some of the best fiat-based cryptocurrency exchanges which allow you to purchase cryptocurrencies directly using your fiat money.
When it comes to purchasing cryptocurrencies in exchange for cash, the biggest name that stands out here is that of Coinbase. Coinbase is the largest cryptocurrency exchange in the US - and a name which continues to impress the markets with every passing day. Coinbase is beginner friendly and quite easy to use, too.
Coins Supported: Bitcoin, Bitcoin Cash, Litecoin, Ethereum Classic (coming soon) and Ethereum
Countries Supported: USA, UK, Australia, Canada, Europe, and Singapore
Fees: 3.99% for Credit Card and 1.49% for bank transfer
Website Link: www.coinbase.com
When it comes to cryptocurrency exchanges aimed at the European markets, Bitpanda is one of the biggest and the most popular names. It offers a fairly low fees and supports a number of payment as well as withdrawal options, including payments via Credit Card. It also supports such as Skrill and NETELLER among others.
Coins Supported: Bitcoin, Bitcoin Cash, Litecoin, Ripple, Ethereum, etc.
Countries Supported: Entire Europe
Fees: 3% for Credit Card, 1% for bank transfer
Website Link: www.bitpanda.com
Kraken is one of the oldest and the most established players when it comes to the world of cryptocurrency exchanges. The exchange has been around for quite some time - and has been available to traders from multiple countries around the world. The exchange, however, is not beginner friendly and some new users may find it a little odd to operate it. Good option for those who want to invest large sums of money.
Coins Supported: Bitcoin, Ethereum, Ripple, Litecoin, Monero, etc.
Countries Supported: Global (supports over a hundred countries across various continents)
Fees: Varies from country to country and from method to method
Website Link: www.kraken.com
CEX is a popular cryptocurrency exchange which supports several countries from around the world. The exchange is easy to use and is preferred by many first-time users because of the simple user interface. The exchange supports multiple means of payments across the world including support for Credit Cards as well as for bank transfers.
Coins Supported: Bitcoin, Bitcoin Cash, Bitcoin Gold, Ripple, Ethereum, etc.
Countries Supported: Supports over 200 countries around the world
Fees: varies depending on method and country
Website Link: cex.io
LocalBitcoins is a very popular and well-known service among cryptocurrency traders who are looking for a specific kind of payment option. However, it is most popularly used by those who are looking for face-to-face or cash-based transactions. It is a good alternative when it comes to those regions where cryptocurrency exchanges have prohibitions or exchange options are limited. Users can set their own price and own payment methods and find interested buyers or sellers based on their preferences.
Coins Supported: Depends on the seller
Countries Supported: Global
Fees: Variable based on payment method
Website Link: localbitcoins.com
Now that we have seen the best fiat-based cryptocurrency exchanges, it is now time to take a look at some of the best pure cryptocurrency exchanges, also known as altcoin exchanges which deal only in crypto-to-crypto transactions. These exchanges tend to provide a larger number of trading options as opposed to fiat-based exchanges.
The largest cryptocurrency exchange in the world, Binance offers a large number of trading options - which includes over 300 cryptocurrencies to choose from. The exchange is considered to be one of the safest as well as one of the easiest to use. Moreover, it is slightly more relaxed on privacy when compared to other major names. Binance even has its own proprietary cryptocurrency, the BNB token, which can be used to reduce the cost of trading fees.
Binance is available in multiple languages, ensuring that it is user friendly for users who do not speak English. Moreover, Binance also has mobile applications for their users - making it quite convenient for them to trade at any time and from anywhere.
Coins Supported: Over 300 cryptocurrencies
Countries Supported: Global
Fees: 0.05% per trade
Website Link: www.binance.com
Another of the most popular and trusted names when it comes to crypto-to-crypto altcoin exchanges, Bittrex has been around for quite some time now - and has gained the credibility of being a reliable name over the years. Bittrex supports a large number of cryptocurrencies and has multiple security options as well. The exchange is beginner friendly, but also offers some of the best tools for analyzing the cryptocurrency data. This makes it an ideal choice for experienced traders to study the currency performance graphs. Bittrex also has a good customer support.
Coins Supported: Over 120 cryptocurrencies
Countries Supported: Global, except a few blacklisted nations
Fees: 0.3% trading fees
Website Link: bittrex.com
Recently in the news for its acquisition by Circle, Poloniex is a major name when crypto-to-crypto exchanges are considered. Another old and experienced player in the markets, Poloniex is trusted by millions of users from around the globe. The exchange offers a simple layout where everything is displayed on one page. It is easy to learn and easy to use - and offers all the options that one needs for an optimum trading experience.
Coins Supported: Over 95 Cryptocurrencies
Countries Supported: Global
Fees: Maker and Taker fee varies, no fees on deposits and withdrawals
Website Link: poloniex.com
Cryptoradar helps navigate the crypto world, combining real-time price comparison (think “Kayak for cryptocurrency marketplaces”) with crowdsourced reviews (think “TrustPilot for cryptocurrency marketplaces”). On Cryptoradar you can compare more than 30 exchanges, across two fiat currencies (USD, EUR) and nine different cryptocurrencies and lots of reviews. The best part that the users contributing to the platform additionally have the opportunity to earn affiliate commissions, e.g. when reviewing an exchange.
Now that you know about what cryptocurrency exchanges are, how they function and which are the best options that you have, let us now take a look at another important component that is often used along with an exchange - a cryptocurrency wallet. Sometimes, once you are done with your trading activities, you might want to withdraw funds from the exchange and have them stored on a cryptocurrency wallet. You can read our complete guide to cryptocurrency wallets for a detailed understanding on the functioning of wallets.
When it comes to cryptocurrency wallets, there are a number of options that are available such as hot and cold wallets, online wallets, exchange-based wallets, pc-based or mobile based wallets. However, the best option for traders would be to maintain a cold-storage device - a hardware wallet such as Ledger Nano S or Trezor.
These devices are easy to use and offer the best protection when compared to other forms of wallet. These remain offline and disconnected from the internet and save the private key of the wallet with the user, giving the user more control over his privacy and security. This is highly recommended for all traders and particularly for those who are trading in high volumes because this offers them with the maximum security.
When it comes choosing the best cryptocurrency exchange for beginners, Binance and Coinbase emerge as the two best options. Coinbase is considered to be the easiest to use and offers a high level of security. However, the biggest limitation with Coinbase is the number of countries that it supports. In case your country is not supported by Coinbase, you can also try out the services of Binance.
Coinbase is considered to be the best cryptocurrency exchange for beginners because of various reasons. It has an easy to learn and easy to use, intuitive user interface. Moreover, it offers the users with a large number of payment and withdrawal options as it is a fiat-based exchange. Coinbase also supports credit card purchases if your bank allows it. The exchange has several major licenses to its name, including the coveted Bitlicense from the state of New York.
The customer care service of Coinbase is also quite excellent - and helps the users deal with all their problems in an effective manner. The exchange also offers mobile applications for Android as well as iOS users. The verification process is also quite easy as well as quick. Hence, Coinbase is the best fiat-based exchange for beginners. Moreover, Coinbase is looking forward towards adding more cryptocurrencies to its offering as it now supports ERC-20 tokens.
For those looking forward to use an altcoin-based exchange, Binance is an excellent option. (You can also check out our comprehensive guide to the Binance cryptocurrency exchange for a detailed insight into how to trade on Binance)
For those users looking forward to select the best cryptocurrency exchange for day trading, Binance emerges as the clear winner. The Binance platform allows the traders to easily set their targets as well as stop-losses, making it easy to automate the process of day trading.
Moreover, the biggest advantage of using Binance as a cryptocurrency exchange for day trading is the fact that Binance has one of the lowest fees when it comes to trading charges. Especially when fees is paid with BNB tokens, this can be even more beneficial as charges can be reduced. Another major advantage of Binance is that it offers quick liquidity when compared to many other exchanges.
Safety is a paramount factor when it comes to cryptocurrency exchanges. Hardly a few weeks go by before the news of an attack on a cryptocurrency exchange breaks out. Not all attacks are successful, but those that are, tend to result in massive losses. A Mt. Gox hack in 2014 led to a huge crash in the cryptocurrency market. The recent case of the Coincheck hack resulted in a loss of $500 Million, which also had a deep impact on the markets.
Let us now address the elephant in the room and talk about the security aspect of cryptocurrency exchange. How to know that the exchange that you are going for is a secure one. Here are some factors that you should keep in mind when assessing your security of trade.
Before you invest your money into a cryptocurrency exchange, invest your time in researching about the exchange. Look at the past performance of that exchange - has the exchange ever been hacked in the past? Have attempts to hack it been made? How did the exchange deal with it? Moreover, look at the people involved with the exchange. Are they credible names in the industry? Do they have a media presence - on social media as well as the mainstream media?
Also look to the internet for reviews and ratings about the exchange. What are other users of the exchange talking about it - and how their experience over the years has been, especially in terms of security and customer support. It is after this research that you should finally decide to go for an exchange.
Always Enable 2FA Security
Identity theft and hacking personal passwords has become quite common these days. However, you can ensure that your cryptocurrencies are protected even if your password is compromised by ensuring that you have set up the 2-Factor Authentication system. Popularly known as 2FA, this security method adds another layer of security to your password.
If your 2FA is enabled, you would be asked to enter a unique code which comes to you either in the form of an SMS or via an authentication application on your phone - which is exclusive only to you. This ensures that only the intended user can log into his account.
Use Escrow if Possible
This is particularly important for exchanges which allow peer to peer transfers. Any time that you are dealing with a third party for a cryptocurrency deal, always ensure that you deal via an escrow. An escrow is basically a person or a service which takes the cryptocurrency from one party and the money from the other and then gives it to both the parties - ensuring that there is no scope of fraud. The escrow charges a small amount of money from both the parties involved, but it is always safer to use an escrow service rather than to lose all the currencies or the money.
Bitcoin Investments and Ponzi Schemes
Investment-based Ponzi schemes are on the rise, which attract users to invest Bitcoins in a company, promising them guaranteed and high returns. One must be careful of any organization which promises guaranteed returns - because millions of dollars have been lost in such ponzi schemes. Organizations such as the SEC have issued strict warnings to the public to not invest in such companies.
Here is a look at some of the most commonly asked questions when it comes to the world of cryptocurrencies.
How to Buy Cryptocurrency with USD?
When it comes to buying cryptocurrencies using US Dollars, you need to look for an exchange which supports fiat currencies. If you happen to be based in the US, the best option for you is to make use of Coinbase to purchase cryptocurrencies. Coinbase allows its users to easily purchase cryptocurrencies with USD using bank transfers, credit cards, debit cards and various other methods including wire transfers. This is one of the best ways to buy cryptocurrencies using USD.
How to Buy the Cryptocurrency Ripple?
Ripple (XRP) is one of the most sought after cryptocurrencies, especially following its meteoric price rise in 2017. However, despite its massive popularity, not all cryptocurrency exchanges offer it. One of the best ways to get Ripple is via a combination of Coinbase and Binance. Here’s a step by step process on how to buy Ripple:
Set up an account on Coinbase
Purchase Bitcoins using USD
Set up a Binance account
Send your Bitcoins from Coinbase to Binance
Trade your Bitcoins in exchange for Ripple on Binance.
You could then choose either to spend your Ripple using your Binance account, or to hold it and trade it for a profit and then converting it back to Bitcoin after desired profit levels and targets are met.
Which is the Best App to Buy Cryptocurrency?
There are a number of applications which allow you to buy cryptocurrencies. The Cash app, developed by Square is considered to be one of the best and the most popular applications for smartphone users to buy cryptocurrencies. However, users who prefer to use mainline exchange-based applications could also look for apps of Coinbase and Binance which are also available for smartphone users.
Which Cryptocurrency Exchange Has The Lowest Fees?
When it comes to cryptocurrency exchanges with the ‘lowest’ fees, there is no certain or definite answer as exchanges keep changing their rates from time to time. However, when it comes to pure cryptocurrency exchanges, Binance is usually considered to be the exchange which has the lowest fees. Binance has earned this reputation over the years with their low fees as well as the additional feature of reducing trading fees when BNB tokens are used.
When it comes to fiat-based exchanges, Coinbase is considered the exchange which has low fees (for US-based users) while Bitpanda offers low fees for those trading from Europe. However, this is quite subjective and the fees and charges depend from country to country and from exchange to exchange.
How to Check Cryptocurrency Exchange Rates?
One of the best ways to check the price of cryptocurrencies is to check the crypto market that shows the price of cryptocurrencies on each of the top 100 exchanges along with the daily trade volumes. You can also use Coin Market Cap. Moreover, for those who want it presented in a chart-format can also check out Cryptowat.
To conclude, cryptocurrency exchanges are an important and inseparable part of the cryptocurrency ecosystem. Be it for holding, trading, investing or even for purchasing stuff using cryptocurrencies - exchanges have multiple uses.
Cryptocurrency exchanges are more than just a mere platform for users to buy and sell currencies as they can be used for advanced trading purposes, allowing users to set multiple targets as well as stop-loss limits for each currency. Experienced users can also make use of the data of the exchanges to analyze a trend in the historic patterns to make smarter, more well-informed trading decisions helping them maximize their profits.
We hope this guide to cryptocurrency exchanges helps you understand the concept of exchanges better - as well as helps you make a smarter choice. Stay tuned with us for more informative guides on various aspects of the world of cryptocurrencies.