Surprised? What the heck is Bitcoin and cryptocurrencies? Well, these are some of the questions you might be asking yourself right now. They claim these cryptocurrencies, these Bitcoins are the future. If they are, how can I hold them? How can I own part of the future you ask?
What are Cryptocurrency Exchanges
In this world of possibilities you can now convert your USD or Euros into something of value that can only exist in the internet. Like traditional exchanges as the NYSE, cryptocurrency exchanges dots major economies in the world.
These exchanges are online platform where you can buy and sell cryptocurrencies for fiat currency or other cryptocurrencies. They act like your local store only that it is done remotely and through the internet.
Perhaps the reason you are here is because of Mt. Gox, the first cryptocurrency that filed for bankruptcy after millions of dollars’ worth of Bitcoins were stolen. Maybe you also heard about cryptocurrency exchanges from your mate. We never know. But we can assure you that without them, Bitcoin would not be worth a quarter of their current value.
Like it or not, these cryptocurrency exchanges is hub of the cryptocurrency world. It’s an important interface where value is harvested from digital tokens floating around the web.
Types of Cryptocurrency Exchanges
These are the different kinds of cryptocurrency exchanges:
Cryptocurrency funds: These are just like Mutual funds. The only difference is that instead of stocks and bonds, fund managers channel all customer funds towards cryptocurrencies. These cryptocurrency funds are professionally managed and the public can buy or sell digital tokens through these funds.
Direct Trading Exchanges: With these exchanges, the sellers have the freedom to set their own exchange rates and the exchange simply acts a medium facilitating that peer to peer buying and selling between participants. There are no fixed rates involved.
Brokers: As the name implies they simply create a market place where participants can buy or sell cryptocurrencies at set market prices. The broker benefits from a small markup called spreads added to every buy or sells transaction. Most, if not all, of them are web based. Examples can be CoinBase, Bitpanda and others.
Traditional Cryptocurrency exchanges: These exchanges operate just like the traditional exchanges as NYSE or LSE and bring market participants just like brokers do. Exchanges as these will profit from all the fees they charge per transaction and from fiat to cryptocurrency conversion fees. Additionally, there are no mark ups involved and trading is done at market price. GDAX, Kraken, Bitstamp are good examples.
Factors that make a good cryptocurrency exchange
Now that you know the different types of cryptocurrency exchanges, how will you chose the best exchange to trade or exchange your fiat currency for some Bitcoin? There are several determinants that the community uses to rate and rank exchanges. These include thing like:
Security: Traders and other market participants learnt a valuable lesson from Mt. Gox saga. That of security. For one, you don’t want to invest in a leaking exchange which can be compromised by a novice hacker. Always check the exchange reviews and pay attention to what people are saying about the website’s or server’s security.
Because we are all in because we want to make money, select exchanges that charge reasonable transaction fees and offering high liquid assets.
Another thing that you should look at is integrity. How honest is the exchange? Can traders or investors get access to daily volumes or transaction prices?
Don’t let the exchange dictate which payment methods you should use. Choose an exchange that gives you more than two choices from which you can fund your account and exchange your fiat for Bitcoin or even Ethereum.
If you are planning to trade cryptocurrencies, then look at the number of pairs offered. Is BTC/USD the only pair available? Well, a good cryptocurrency exchange should have more than 20 pairs where traders can choose to trade from.