How to Choose a Cryptocurrency Exchange According to Cryptonit Founder
Bitcoin price is swinging near its historic maximums of $15,000. There is much hype on the market, new inexperienced players are coming. What do you need to know about cryptocurrency exchanges not to get burned by investing in bitcoin? Konstantin Karatov, business developer of Finom Blockchain Corp and founder of Cryptonit exchange has prepared a digest of the world’s famous cryptocurrency exchanges, and also explained why some of them go offline for days and even weeks.
Cryptocurrency exchanges involve risks resulting from the key feature of bitcoin or any cryptocurrency as such. Bitcoin is electronic money to bearer. It means that a person holding the private key to the wallet owns the bitcoins in it. While you keep cryptocurrency in your wallet, there is no need to trust anything to a third party. As soon as you transfer cash to the wallet of the exchange, the latter, in fact, becomes its owner. It is the exchange that also becomes responsible for its safety. The only thing you will have to do is trust the service.
Less than 30% exchanges trust their users to have the right to govern the private key – most businesses take complete hold of storing the assets. Thus, when choosing an exchange, it is reasonable to make sure its management is knowledgeable and responsible enough to protect your cash from hackers or technical bugs.
How to Choose the Exchange?
First, make sure the exchange has a so called cold storage that provides holding the main assets of the exchange offline. All major exchanges use cold storage with up to 80% assets there. Cold storage is essential for keeping most assets safely protected in case of an eventual malefactor attack.
Secondly, the person running an exchange should have flawless reputation. Make sure the Exchange has a continuous feedback channel. If the Exchange is anonymous, this is sure to be a red flag. We have seen many examples of exchanges closing down without any refund for their users. Thus, in July 2017 the oldest Russian speaking Exchange BTC-E left the market, stripping its users of $95 mln. Three years ago, Mt.Gox was the major exchange. It lost $450 mln, went bankrupt and left the market.
Thirdly, check the daily trading volume. It is one the key indicators of the exchange activity. The higher it is, the better. The trading volume of major exchanges may be as high as $300-500 mln a day. Before investing, make sure to read carefully the conditions of placing end withdrawing assets, make note of charges and of the payment systems supported.
As for security, most exchanges provide two-factor authentication for their users. This is nothing new. It is the fact of having a government license that is not quite obvious. Only every third major exchange has got it, whereas the number of smaller businesses that care about obtaining one is of a much higher order.
This exchange registered in Hong Kong is one of the major cryptocurrency exchanges in the world. Its daily trading volume makes more than $2.3 bln. Bitfinex has been on the market since 2012. Personal verification is required for placing and withdrawing fiat. The exchange supports trading on and without margin, as well as exchange. Trading operations are charged at 0,15%, with lower charges for higher working assets. Feedback channels and forum and e-mail. In August 2016, the Bitfinex exchange was hacked to withdraw more than 120,000 bitcoins which made $65mln at the time.
This is an American cryptocurrency exchange registered in Las-Vegas with a daily trading volume of $1.29 bln. Launched in 2014, it supports more than 200 currency pairs including some uncommon ones. Deals are charged at 0,25%. Withdrawing minor assets does not require verification. But there is a nuance. The exchange verifies users by open source bases. If your name could not be approved, you should go through advanced verification. Sometimes it takes weeks.
This exchange created in 2014 in the USA is the main competitor of Bittrex. Its daily trading volume makes $345 mln. The exchange supports more than 100 cryptocurrencies. Verification is required to withdraw $2,000 and more. Wallet can be replenished with cryptocurrency only, dollars do not work there. The exchange supports currency exchange, trading on margin and loan financing. The exchange is often criticized for not coping with the trading volume in peak load hours and going offline for a long time. Besides, the legal status of the exchange in the USA is not quite clear.
This exchange with a daily trading volume of over $200 mln was launched on 28 June 2011 in San Francisco. Kraken trades cryptocurrencies to each other and to USD, EUR and KRW currencies. It provides a few levels of verification, each of them opening new opportunities for trading, placing and withdrawing national currencies and wallet replenishing. Trading operations are charged at 0,2%, with lower charges for more expensive deals. Kraken has by far the biggest trading volume in EUR, however, there are some issues in trading USD. Also, it has one of the longest support queueing. Verification takes from one to three weeks.
This is the major Japanese cryptocurrency exchange with a daily trading volume of $164 mln. Created in 2014, it has launched the investment “Blockchain Angel Fund” with the purpose of supporting blockchain start-ups. BitFlyer has its own crowdfunding platform fundFlyer where you can earn bitcoins from promoting projects. In 2015 the exchange rose $5mln from Venture Labo, Mitsubisi UFJ and Dentsu Digital Holdings. In October bitFlyer presented its own prepaid Visa card.
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