The Cryptocurrency Exchange
First things first, let’s clarify what a Cryptocurrency Exchange is. A Cryptocurrency Exchange is simply a website where you can buy, sell or exchange digital currencies for other digital or traditional fiat currencies, (US Dollars, Euros, Pound Sterling etc).
These work in several ways depending on what you want to achieve. There will be those who want a simple and occasional transaction and also those who wish to buy and sell on a professional level. To operate as a professional trader you will generally have to open an account and operate from a verified ID, but for smaller simpler transactions you should be able to do that without going to the fuss of setting up an account at all.
Types of Cryptocurrency Exchange
There are three types of exchange so far,
- Trading Platforms where the website connects the buyer and the seller and then takes its own fee from each transaction.
- Direct Trading Platforms, which offer a direct person-to-person trading facility on currencies without any given fixed market price. Using these sites the seller will dictate their own exchange rate for each transaction.
- Broker Platforms are websites where anyone can buy cryptocurrencies at a set price that is outlined by the broker.
But you already knew that so let’s get on with the who’s who and why.
There seems to be a great deal of opinion in which are the best exchanges to deal with. There are so many exchanges out there it’s important to know why you should choose any one of them over another. The most obvious points of note are the sites security measures and fees.
After that you’ll probably need to know what types of currencies they operate in, how easy the process is (user-interface/user-experience), payment options and as with most things in life a good reputation goes a long way. We all want to feel assured when dealing with something as important as our hard earned cash so recommendations by the public, press and within the industry are certainly not to be sniffed at.
There are hundreds to choose from and the number is only going to grow as digital currencies become more and more mainstream.
Here’s a quick review on five of the more well known, well used, and popular exchanges so far.
Coinbase is an easy to use, well known, and one of the more popular broker and trading platforms to date. It operates with no maker fees, moderate taker fees, it offers fiat support and covers thirty-two countries (so far).
It’s backed and trusted by millions of customers worldwide and is a great place to buy, sell, store and trade your digital currency.
Coinbase trades with four cryptocurrencies. Those available so far on are; Bitcoin, Bitcoin Cash, Ethereum and Litecoin, although there have been murmurs that they will be adding further currencies through 2018.
A simple level of operation
If you’re a newcomer to the world of digital currency then Coinbase is very user friendly and shouldn’t offer any real problems to someone making their first leap into any of the four digital currencies it has on offer.
…and for the more advanced
For traders with more professional and higher level requirements, in 2016 Coinbase introduced an alternative option for digital currency trading by developing their existing ‘Coinbase Exchange’ brand into GDAX – Global Digital Asset Exchange. GDAX was created in order to give the serious trader a platform to utilise more typical and advanced trading tools that the newbie trader wouldn’t yet have the experience to understand.
The payoff for this move was that for those with that additional expertise they receive substantially lower fees of around 0.25% as opposed to Coinbase’s 1.5% when organising payment via bank transfer and around 4% when paying with a credit card. Utilising the same product and system for two quite different sets of customer Coinbase now have two separate portals to handle each of them under an umbrella company that has something for everybody. Quite the clever move, and on top of which, the GDAX client can happily switch between GDAX and Coinbase seamlessly to take advantage of either platforms benefits.
Binance “Binary Finance” is both a cryptocurrency (BNB) and a Cryptocurrency Exchange.
Binance offers one of the largest ranges of bitcoin and altcoin and also one of the lowest transaction fees seen to date – currently sat at 0.1%. At the time of writing they have around a hundred cryptocurrencies to choose from. It’s also one of the quickest exchanges to add newly introduced currencies to its site. This is certainly advantageous for getting in on the ground level with new currencies and trading in any significant rise in value over time.
Two User Levels
You cannot use fiat money on Binance so you’ll have to have bought your digital currency elsewhere and transfer it into your Binance account to start trading, however, there is no fee and also no limit on the amount of funds you can transfer in to your account. The withdrawal limit stands at just 2 BTC per day at Level 1, which is Binance’s entry-level account that requires no verification details. If you choose to verify your account you will achieve the Level 2 class and with your account approved you can then withdraw up to 100 BTC each day.
To verify your account as well as providing your basic personal information you’ll also be required to supply a passport photo, your passport ID and a selfie taken with your passport. Once verified you will access the site using either utilised a two-factor authentication process that currently only allows Chinese numbers or Google’s authenticator. Thank heaven for Google, but if you’re serious about trading then these security measures will add a little piece of mind for traders when moving any amounts of their hard earned cash.
Two User Interfaces
There are two separate user interfaces; a basic view suggested for the beginner trader and an advanced view that provides additional tools for further technical analysis for the more advanced and experienced trader.
Looking for the pros and cons to choosing Binance the obvious pros are the amount of currencies and the extremely low rates. They offer support in a handful of languages including English which they haven’t received the greatest of reviews for. Support is served via a ticket system and there is no phone-line or live chat facility at the moment. The interface isn’t the most user friendly in the industry but with a little effort appears easy enough to get to grips with, adapt to, and move up to the advanced version to take full advantage of the additional tools it has to offer.
Based in Hong Kong Bitfinex is another reliable player in the Cryptocurrency Exchange market who also offer their own unique tokens (BFX). The most notable moment throughout their company history however, has both dented them and defined them as a major and trustworthy player.
The Bitfinex Hack
Given security is one of the largest issues when dealing with any kind of currency, digital or otherwise, the worst thing you’d think that could happen to a Cryptocurrency Exchange would be a huge failing in exactly that. In August 2016 Bitfinex suffered such a hack and approximately 120,000 bitcoins worth an estimated $72 million USD were stolen.
Instead of rolling over and calling quits on the whole sorry affair Bitfinex showed the crypto world just what they were made of and bounced back with a plan. They spread the losses over all user accounts instead of just those that had suffered from the attack and told every one of them that they would be fully compensated. Eventually.
To do that they introduced custom BFX tokens to all users proportional to what they had lost. The users could then choose to trade them through the exchange or wait for Bitfinex to buy them back at their original $1 face value; which Bitfinex did, reasonably quickly and in full, proving their virtue and reliability in the eyes of the industry and of their users.
For such a large player it’s no surprise that their fees are low. Takers fees run at 0.2% and the makers pay a little less at 0.1%. When trading at low levels there is a $20 minimum if the 0.1% or 0.2% takers/makers fee doesn’t reach that amount. However, they do waive all maker fees for any accounts that have traded over $7.5m, and the maker fees can be reduced to 0.1% with a sufficient volume of operation.
There is no charge for deposits made in cryptocurrency and making your USD or Euro fiat currency deposits will mean you have to verify your account ID first.
Bitfinex offer a margin lending of USD or cryptocurrency, which gives the trader a chance to earn interest on the funds they have in their Bitfinex account. There are online tools to work out returns for interest rates and time periods.
Another service they offer is an over the counter service which allows their customers to make trades in a much more anonymous manner.
The interface is considered a little confusing but is customisable which is advantageous for beginners and experienced traders alike. They offer an API to automate trading and as well as their own BFX tokens they offer Bitcoin and over thirty other altcoins. They are not to be taken lightly as they handle around 10% of the current market share.
The first UK based operation to hit our review list. Based in London and established in 2013 CEX began life as an exchange and cloud mining provider. By 2015 its cloud mining operation was closed for good and this exchange has grown to handle around 400,000 traders each month offers a variety of well accepted merits which sadly seem to be overshadowed by some inflated prices and hidden fees.
CEX has a fee model. The percentage rate changes for variations in volume. They range from 0.2% for volumes below 5BTC to 0.1% for volumes exceeding 6000BTC. The deposit and withdrawal rates are between 1.2% and 5% of the transfer amount. Margin trading fees have fixed rates of 0.2% open, 0.01% rollover and 0% close on all currencies.
It’s one of a few exchanges that will allow you to deposit funds with payment cards, but it’s with this advantage the exchange’s biggest drawback arises. When utilising your chosen payment card the fee you’ll pay is 7% when buying and selling your cryptocurrencies using your chosen fiat currency. Other online articles and reviews suggest that users have felt duped by some of the hidden fees not clearly outlined during the process but the 7% conversion isn’t one of them.
It’s clear to see and one of the main factors in this exchange being marked down highly by so many. It offers four fiat currencies in its exchange; United States Dollar, Euro, Russian Ruble and the Great Britain Pound. Its digital currencies list is extensive, handling more than enough to keep the most ardent trader out of mischief.
The user experience with CEX is favourable. Not all agree but most users are impressed by the speed, the style, and the ease of finding the relevant information of the website.
CEX also offers an API which is as well received as the website experience. The software is designed to give its users greater control over their account and to meet the needs of traders experienced in using such a tool.
One of the things CEX have achieved where others fail is in their customer support. Many of the answers are pre-written but if they get the job done then who’s to care? Responses are fast and detailed. Not only do they monitor requests on their own site but also address complaints made on external sites where disgruntled customers may air their problems; the support team are there to turn them around and in turn into positive feedback in their own right.
For an exchange that scores pretty well in so many areas it seems a shame for it to be mostly overshadowed by its one main let-down; its fees. It has excellent security history, trades in 99% countries worldwide, has a simple and relatively fast verification process (around 24 hours), it has apps on both iOS and Android and includes an API alongside its smooth operating website.
It also offers four account types (Basic, Verified, Verified Plus and Corporate) offering different limits depending on level, with the top two accounts have no limits for their users.
LocalBitcoins operates slightly differently to other exchanges. It operates as a peer-to-peer exchange and by doing this allows the users to choose whatever payment methods they choose (e.g.: cash on delivery, PayPal, Webmoney, Direct Bank Transfers etc.), and whether or not to trade remotely or face to face.
By providing this private purchase system it also gives the users unlimited buying and selling limits. Although the process has many unique advantages it also has a number of disadvantages that the exchange itself has sought to limit in the most effective ways it can.
The general principle is that users will find a seller located geographically near to them by using the LocalBitcoins exchange to view advertisements placed on the website with the coin price decided by the advertiser. The commission to LocalBitcoins for each transaction is 1% payable by the seller so it is accepted that this will be incorporated in the advertised price. By operating like this the prices offered will be slightly higher than those featured on more conventional Cryptocurrency Exchanges.
Buyers and sellers are recommended to communicate solely through the site to avoid scamming, as safety and security measures cannot be guaranteed without the gateway’s watchful eye being able to reference communication if any conflict or dispute should arise. Once both parties have agreed a transaction they can meet in person if preferred to complete the transfer.
It has become a reputable and easy way for new traders to be introduced into Bitcoin trading.
The site has introduced various methods to limit scamming which would be the main drawback in this type of system.
- Sellers utilise a profile (much like with ebay or uber) and it is up to the buyer to check that the seller meets enough conditions to be judged bonafide. It is recommended they have a feedback score of 98%, has traded over 100BTC over at least 100 trades, they should have held the account for more than a year, be verified and trusted by 10 or more people.
- LocalBitcoins hold all transaction monies in escrow and these funds are only ever released after the buyer confirms a successful exchange.
- A Conflict Resolution service is available for all users in any event of disagreement between buyers and sellers. The customer support throughout the site is excellent; the conflict resolution service is no exception.
- As standard with most exchanges LocalBitcoin also utilises a 2 Factor Authentication system.
LocalBitcoins has been generally considered a safe and easy platform for acquiring Bitcoin. Users must be more aware and as safety conscious as ever because of the difference in how this system operates compared to traditional exchanges but if you trade within the guidelines and rules of the site then it can be a very easy way to become introduced to Bitcoin trading.