In the world of cryptocurrency, exchanges dominate. Serving as both market-maker and consumer on-ramp, exchanges provide a vital service.
That said, there are many stories and unfortunate circumstances where users have lost money, cryptocurrency, or been a victim to theft or a scam.
With so many choices available, and so many bad actors in this space, how do you choose a good exchange? How can you tell the best crypto exchanges from the worst crypto exchanges?
Keep reading to discover our list things to look out for when you choose a crypto exchange.
Security is the biggest factor you should consider when choosing a cryptocurrency exchange.
Security covers a broad range of systems and services, and there’s no single feature to look for. It can encompass your personal information, the safety of your cryptocurrency tokens, or the safety of your banking information.
Storing and Protecting Your Data
For businesses operating inside the European Union, they must follow the General Data Protection Regulations (GDPR). This law governs how businesses must store and protect your data. They must ensure it remains accurate, that no one has unauthorized access to it, and that it remains up to date.
Moving onto your token security, this is a huge part of choosing an exchange.
The endless tales of cryptocurrency exchange hacks illustrate how it can go wrong for customers when exchanges mess up. We often say (and it bears repeating) that if you don’t own your private keys (as is the case when using exchanges), then you don’t own your cryptocurrency.
Even if you move your coins of immediately after purchase, there will always be a period of time when an exchange stores your coins. By conducting some research on the exchange in question, you can reduce your risk:
- Has the exchange suffered a hack in the past?
- What happened, and was it the exchange’s fault?
- Did the exchange reimburse customers out of their own pocket, or did the customers take the cost of the hack?
By performing due diligence on any exchange, you can be comfortable with the risk you may be undertaking.
One step you can take to improving your account security is using a 2FA app. A dedicated 2FA app adds an extra layer of security and could help stop an attacker stealing your crypto. Here are the best 2FA apps you can use with almost any crypto exchange account.
With a fast exchange, you can be confident that your trades will execute as fast as a buyer or seller is found to fill the order.
Exchanges that take minutes to process trades, or generally slow down any process—including withdrawals—are not worth your time. This could be a deliberate tactic to make more money or a product of a slow server or other misconfiguration (perhaps due to the rapid growth of the exchange).
Regardless of the reasons, if an exchange cannot execute your trade almost instantly, or your withdrawal in a reasonable time, then they are not worthy of your coins.
Any exchange needs to be reliable. Even the big names suffered here way back in the 2017 crypto explosion. It was hard for anyone to predict the slew of consumer interest, and so the onslaught of new users brought veteran exchanges to their knees.
Any of the best crypto exchanges has figured out the scaling problems. If a few hundred or thousand users can cause an exchange to crumble at this point, then you should consider a more mature platform to trade on.
Many exchanges limit your withdrawals, often through the means of a daily cap. Many large exchanges may cap this at $20,000 -- $30,000 per user, per day. But it can be lower for smaller exchanges, or even larger services such as Coinbase.
The reason for this is simple: If every user decided to withdraw their Bitcoins from an exchange, there may not be enough liquidity in their accounts to process every order. Even if the exchange owns every coin, they are not always readily available. Exchanges often use cold wallets to store the bulk of their funds away from prying eyes or potential attacks.
Providing you perform your research on an exchange before committing to it, you can avoid this becoming an issue for you. If you know you’ll only ever need $10,000 per day, then an exchange with such a limit may be more than suitable for you. If an exchange caps you to a tiny withdrawal amount daily, then you should look elsewhere.
5. Know Your Customer Verification
Know your customer (KYC) verification is a common and often legally mandated requirement of exchanges. This can vary from exchange to exchange and country to country, but it often involves sending copies of your government-issued identity to the exchange, along with special phrases included in recent images of yourself.
It’s often a quick and painless process, but be very wary of exchanges that either don’t mandate this or use reduced methods of verification.
If an exchange is willing to break the law by ignoring KYC requirements, then what else are they cutting corners on? Is their security good enough, or is the owner helping themselves to your funds? It pays to be diligent in this area.
Cryptocurrency exchanges all have reputations. Some exchanges may be trying to raise their profile, while others may be fire-fighting, always working to stem the flow of negative reviews.
By conducting some research on a potential exchange, you can be sure you won’t get caught out by the bad actors. What’s the support like if you get locked out of your account? Does the exchange often close old accounts (even if they have a balance), or even worse, do they eject users?
Any big exchange will have some unhappy customers, but on the whole, the best crypto exchanges have a good following and a happy customer base.
If exchanges have many negative reviews (or even worse, no reviews, which could show a brand new exchange), then you should look to avoid them in favor of a more desirable system.
Variety is the final aspect to consider when choosing an exchange. While this isn’t a deal-breaker for most exchanges, at the very least you’ll want a good variety of currencies to trade. Are there enough trading pairs to get from your cryptocurrency to the one you want to buy, or do they not even offer coins outside of the big ten?
Cryptocurrency exchanges let you trade currencies, so having a wide variety of different coins and wallets is almost an essential requirement.
Exchanges that offer little variety are often brand new, small, or scams, and should be approached with caution.
What Cryptocurrency Exchange Do You Use?
These seven tips are some aspects to consider when choosing an exchange. Generally speaking, the big well-known exchanges have all these issues resolved and can offer you a fast and easy experience.
We recommend using:
You should be very careful around smaller exchanges or those that give the appearance of carelessness. If exchanges can’t get these fundamental basics correct, what hope have they of resolving a crisis, or looking after you in your hour of need?
If you’re still undecided about which exchange to use, then our list of the best crypto exchanges is a good starting point.
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