Bitcoin, Ethereum, Ripple, IOTA, Litecoin, and Dash are all cryptocurrencies that you might want to get your hands on. The problem is that you can’t buy them in a store or at a currency exchange. The only way to purchase virtual currency is through a cryptocurrency exchange. According to Bitcoin News, there are more than 500 different exchanges on the market and this fact complicates the matter. Which one do you use?
Not all cryptocurrency exchanges are what they appear and you need to know what features you should be looking for. These features help you determine the reliability of the exchange, how safe you are going to be and if you can actually do what you need to on them.
The Reputation and Security
Reputation is not really a feature per se, but it is something you need to look at before you start using a cryptocurrency exchange. An exchange with a good online reputation should be your first port of call. If you are unable to find anything about the exchange online other than the exchange website, you need to reconsider using them.
While not having a reputation does not mean that the exchange is bad, it could be very new and you do not want to deal with the teething problems they face. However, there are exceptions. For instance, Binance was first launched in 2017 and by 2018 it had become one of the top 3 cryptocurrency exchanges with the highest volume of trades. When proceeding to the review of Binance features it should be rightfully mentioned that the exchange has done a great deal to secure their platform and win the trust of the users.
Still, exchanges with a good and long-standing reputation will generally be more secure and safe to use. This is one of the most important features to consider because you are dealing with virtual items of value and do not want to be the victim of fraud or hacking. Again, you should keep in mind that it is no rule of thumb and there might be exceptions. Take the hacking story of the ill-fated Mt.Gox, once the most reputable exchange.
The first step in checking the security of the exchange will be whether or not the website is safe. This is easy to do and you look at the URL for this. If the URL starts with https, the website is secure, but if it has HTTP it is not secure. You also need to check the documents on the website for more information about the security measures they have in place. Never use an exchange that does not take security seriously. Otherwise, you could be the victim of identity fraud or hacking.
The Fee Structure
When you use any exchange, whether, for the cryptocurrency, or forex, or stocks, you will be faced with fees. This is how the exchange makes money and stays in business, but they do not have to cost you a fortune. When you choose an exchange to work with, you must look at the fee structure and compare it to other exchanges. There are 3 primary fees that you can be charged by the exchange.
The trading fees will be charged on every exchange that you complete through the site. Some exchanges have fixed trading fees which are a small percentage of the traded amount. There are other exchanges that use a maker-taker model. This fee model will have tiered transaction fees based on the total volume of the trade.
As the name suggests, this is a fee charged for the deposit you make. Many exchanges will have a combination of fee-free and fee-based payment methods. There are some exchanges that charge a fee on all deposits. Others will not charge any fees and make up their money on the transaction.
You do not always have to pay this fee, but it is important to know about it. In order to hold and handle cryptocurrency, you need to have a wallet and some of them charge fees. Using the wallet provided by the exchange could come with a minimal fee and you need to check this. There are also some exchanges that charge for the use of third-party wallets.
The Payment Methods
After determining the security and fees, you need to look at the payment methods that are accepted by the exchange. If the exchange has a limited number of payment methods, it may not be that convenient to use. Most exchanges allow you to deposit funds using credit or debit cards and via bank transfer. Some do allow PayPal, but this is not always the case.
An exchange that offers credit and debit card payments will usually charge a fee for this. These transactions carry a higher risk of fraud than others and the exchange has to cover this. They also require identity verification which is another expense to the exchange.
If you want fast purchases, you need to reconsider using wire or bank transfers. This takes a few days to complete, but will generally not have a fee. These transfers do not cost the exchange in the same way that card payments do.
To cut back on fraud, cryptocurrency exchanges will perform ID verification. It is better to work with an exchange that does this as it lowers the risk of identity fraud. Most of the exchanges that require this will be located in the USA and UK.
There is another benefit of ID verification. It protects the exchange of money laundering as well as other scams which ensures they are around to service your needs. You have to allow a few days for the verification to be complete. You will not be able to trade before this has been done.
Cryptocurrency on Offer
You have found the perfect exchange that is secure, has low fees, and you have completed the ID verification. You go to make your first trade only to find that the cryptocurrency you want is nowhere to be found. This scenario can be avoided by looking at the currency on offer before you join.
A lot of people assume that exchanges offer all currency, but this is not true. There are many exchanges that focus only on Bitcoin while others will only trade in altcoins like Litecoin or Ethereum. Checking this before you do anything will save you a lot of time and frustration.