What are crypto exchanges?
Crypto exchanges are online marketplaces where you may buy and sell digital currency. Exchanges can be used to exchange cryptocurrencies, such as converting Bitcoin to Litecoin. The pricing of the cryptocurrencies on exchanges is based on current market rates.
Features to look for in crypto exchanges
Accessibilities
Due to local regulations, you might not be able to buy or sell cryptocurrency in your location on some exchanges. Some nations have outright forbidden their citizens from accessing crypto exchanges.
There is a lot of regulatory ambiguity around cryptocurrencies in the US and some states have implemented them. For instance, New York only permits licensed businesses to provide specific recognized coins and needs exchanges to obtain a BitLicense. Other states don’t have regulations as strict as New York. Many states do regulate in some way or are taking steps to do so.
You can find details regarding geographical restrictions on the exchange’s websites.
Security
Any centralized authority does not back cryptocurrencies. Your cryptocurrency holdings are not safeguarded in the same way that bank deposits or conventional investments.
Certain exchanges, such as Coinbase, maintain any U.S. dollar amounts you have with them in FDIC-insured bank accounts. However, the FDIC does not cover cryptocurrency balances.
Some crypto exchanges offer insurance plans to shield users’ digital currency from fraud or hacking in order to secure their crypto. Others, like Kraken, rely more on their security procedures than insurance plans to safeguard their clients.
The security of the crypto exchange should be your top concern. whether you intend to retain your cryptocurrency holdings there or merely have them there for a short period of time before transferring them into your personal wallet.
Given that rising cryptocurrency values make them more valuable targets for potential criminals. The year 2020 saw a total of 28 attacks on crypto exchanges. The biggest was the theft of more than $200 million in bitcoin assets from KuCoin, a Singapore-based exchange.
You can search for standard online security features like two-factor authentication that you may already be familiar with from other sites.
You might feel safer staying with well-known crypto exchanges with a sizable customer base. Smaller or younger exchanges with no clear web descriptions of their security precautions and products may put you in danger.
Liquidity
The exchange you pick should have a significant transaction volume. This will allow you to purchase, sell, or trade your cryptocurrency. Again, in this case, size may be necessary. The exchanges with the highest trade volumes are sometimes the ones that are well-known.
Traders will always look for a better chance of purchasing or disposing of cryptocurrencies at the best price. This could happen when many deals take place within a specific exchange at any given time. Cryptocurrency prices fluctuate rapidly. An exchange with low transaction volume may result in you paying more than you would on exchanges with higher trade volumes.
A cryptocurrency price tracking website called CoinMarketCap continuously monitors the number of trades on the hundreds of active exchanges. At the moment, it monitors Binance, Coinbase, and Huobi as the top three exchanges globally in terms of volume.
Educational tools
The ability to learn more about various coins, digital assets, and blockchain technology is a top priority for crypto newbies. This is important when it comes to selecting an exchange.
The Coinbase Earn program pays users for learning about the new currency. It pays you a small sum in exchange for viewing movies and answering quizzes about various coins. This will allow you to keep or exchange for something else.
Gemini’s Cryptopedia or Binance Academy, provide courses and materials on their websites to assist you to learn about cryptocurrency markets.
Storage
It can be wise to use an exchange that allows you to retain your cryptocurrency in your online wallet. You might retain your cryptocurrency in your own wallet once you’ve learned more about storage possibilities. Move your coins to a different location whenever you have some experience.
Tax
You must be aware of the worth of your cryptocurrency both when you buy it with dollars and when you sell it. Gains from transactions are subject to tax depending on the policy and regulations in each country where the transaction takes place. Crypto exchanges that let you move your assets off of their platform can’t keep track of every transaction you make.
Conclusion
According to your personal preferences, you can also take into account other variables in selecting crypto exchanges such as:
- Customer service
- How much do you like the platform’s mobile app
- How simple the exchange is to use in general
But you should take time to understand as much as you can before investing money in cryptocurrency. Consider the fee schedules, security precautions, additional actions you’ll take to store your money, and your objectives.
More time should probably be spent studying the crypto exchanges before making your decision. It’s crucial for you to become knowledgeable, especially when dealing with an asset that may be more volatile than other risky assets.
