In light of this, this piece will introduce you to the technicalities that define cryptocurrency exchanges and some of the ways to identify the reliable ones. Afterward, we will walk you through our review methodology as well as our list of cryptocurrency exchanges.
What Is a Cryptocurrency Exchange?
Like its traditional counterpart, a crypto exchange platform offers its users a means to trade assets. However, in this case, the assets in question are digital assets. Apart from this basic functionality, crypto exchanges are beginning to capitalize on their growing influence in the crypto space to take on more responsibilities. This is evident in the explosion of Initial Exchange offerings (IEOs), which startups are increasingly adopting. Here, a crypto exchange uses its platform as a launching pad for startup offerings for a share of the funds raised from the crowdsale campaign.
How Do I Differentiate Between the Types of Crypto Exchanges Available in The Market?
While all cryptocurrency exchanges perform the same tasks, albeit in slightly different ways, it is imperative to know the differentiating factors that separate these entities and how it should feature in your research. These factors include:
The Governance Model of The Crypto Exchange
Cryptocurrencies, like bitcoin, opened our eyes to the possibilities of decentralization as well as the downsides of centralized systems. It is, therefore, unsurprising that the concept, which borders on autonomy, has its place within the auspices of the crypto exchange market. As such, there are decentralized cryptocurrency exchanges stylized as Dex, and they give users autonomy, as regards their private keys. In essence, a decentralized exchange allows direct communication between traders. There is no need for intermediaries or requirements that entails users to transfer the control of their holdings to exchanges.
Here, smart contracts feature prominently to deal with issues that could trigger disputes. Some of the advantages of trading on Dex is the zero or negligible transaction fee it offers users as well as its insusceptibility to attacks and hacks – since the platform does not own or operate wallets. Likewise, the framework of this class of exchanges promotes privacy. Know Your Customer and Anti-Money Laundering procedures do not apply to Dex users, especially the completely fully decentralized ones.
On the other hand, centralized trading platforms, which are the most popular crypto exchanges, stand as intermediaries and central authorities governing the activities of users. And so, they establish ecosystems, which rely on their capacity to provide fast and secure trading infrastructures. In return, central exchanges charge fees for the transactions enabled on their websites. Also, they run an exchange model that entails that users utilize their hot wallet services before they can access the platform’s exchange facilities.
Like the decentralized exchanges, the centralized ones have their advantages. Perhaps the most obvious one is the unparalleled liquidity and trade volumes they offer. Users get to carry out instantaneous trades since centralized exchanges can generate and support more activities than decentralized ones.
The Type of Exchanges the Platform Enables
The second differentiating factor of crypto exchanges is the type of trades the platform enables. Here, the details to look out for is the exchange’s readiness to facilitate fiat-related trades. Some exchanges offer users exchange facilities for trading pairs involving fiat currencies and cryptocurrencies. In other words, users can buy crypto with fiat currencies or sell cryptocurrencies for fiat directly on the sites. That said, some restrict their members to crypto to crypto trades. The type of trade you are looking to undertake would determine the class of exchanges that best suits you.
Now that you have an insight into the various classes of exchanges available to crypto participants, the next section will explore some of the questions you need to answer when considering a crypto exchange for your various crypto activities.
Is the Exchange Legal in Your Location?
By now, you should have an idea of the legal standing of crypto in your location. Needless to say, countries with strict regulatory standpoints on matters relating to crypto usually restrict the activities of crypto exchanges. For people located in such countries, trading or transacting on crypto exchanges might attract consequential penalties. As such, you should ensure that trading crypto is legal in your location before accessing crypto exchange services.
For people living in countries that allow crypto exchanges to operate, there is a need to verify that the exchange of your choice satisfies regulatory requirements. Since nations are beginning to set up frameworks for their respective crypto exchange market, it has become difficult for exchanges to run a global business model. And so, the credible ones would rather snub users located in countries with strict requirements. A case study is foreign-based crypto exchanges’ reluctance to offer services to US crypto participants because of the country’s unfavorable regulatory terrain. Participants located in this region have only one viable option, which is to patronize US-based cryptocurrency exchanges that have secured licenses to run an exchange business.
In the same way, you should check for an exchange’s legality in your location before registering or executing trades on it.
How Efficient Is the Exchange’s Customer Relation Culture?
Quality customer service culture has become a standard in the business world. This notion carries the same level of potency in the crypto exchange market as a platform’s customer service culture is one of the ways to assess its credibility. For one, top cryptocurrency exchanges with globally known brands must set up customer services that cater to a diverse community. As such, these platforms must offer multi-language support systems, which will help users communicate their queries faster and more efficiently. Likewise, you should only go for platforms that offer 24/7 support to their users and those that give feedback or resolve queries on time. For a fast-paced ecosystem like the crypto market, accessing quick and helpful responses to queries could go a long way to determine how much profit you make from your crypto activities.
Does the Exchange Offer Premium User Experience, And Is It Beginner-Friendly?
Cryptocurrency exchange sites deliver several features to help users go about their businesses in the crypto market. That said, your ability to access these features and utilize them properly defines how fast you can capitalize on crypto market trends. This is where user experience comes in. User experience is a critical factor to consider when researching crypto exchanges. Here, you need to gauge your expertise in using crypto trading tools found on exchanges, and how easy it is to access and utilize them. To ensure that user experience is at a premium, you should check that the design and layout of the platform allow easy navigation. The more the features of an exchange, the more complex it is for new entrants. And so, always match up your experience as a trader with the platform’s perceived complexity. For newbies, it is advisable to go for exchanges that adopt simple designs and less technical trading tools. On the other hand, experts might prefer loaded crypto exchanges, depending on the type and volume of trades they execute.
Does It Offer Enough Liquidity and Trade Volume?
As mentioned earlier, centralized exchanges continue to reign supreme over the market. This statement is evident in the volume of trades they process. The largest cryptocurrency exchanges in the space have the infrastructure in place to fill their users' orders, regardless of their sizes. As such, if instantaneous trade is what you want, then large centralized exchanges are the best fit for you. Nonetheless, liquidity, which is a bit dicey, also comes to play when choosing a trading platform. You can gauge liquidity by analyzing the number of trading pairs available on the platform. For people who own diversified crypto portfolios, it is important to verify that your chosen crypto exchange has a list of trade pairs that encapsulate your crypto portfolio.
While popular cryptocurrency exchanges offer a long list of trade pairs, there is, however, no guarantee that they will support lesser-known cryptocurrencies. In this case, the best option is to look to smaller crypto exchanges or decentralized exchanges for trading services. It is imperative to sort crypto exchanges by volume or the level of liquidity they offer.
What About Its Security?
Security details of crypto exchanges are vital when you compare crypto exchanges. Taking a look at the incessant attacks on crypto exchanges, it is clear that exchanges have to do more to ensure that their platforms are safe. Hence, two-factor authentication has become standard practice for the safest cryptocurrency exchanges, as it gives their users a second level of protection. Also, you should ascertain the security precautions taken to ensure that the exchange’s holdings are less susceptible to hacks, especially for exchanges that offer custody services. The information you need to gather borders on the number of wallets assigned to hold users’ digital assets and the type of authentication measures set up for each.
You should choose exchanges that utilize multisig wallets, which require the inputs of more than one individual in the authentication process. This system curtails single-point attacks or lost assets resulting from misplaced private keys. Furthermore, there is a growing urgency within the crypto exchange space to partner with licensed custodians. You should take advantage of this paradigm shift by choosing platforms with insured wallets.
How Much Does the Platform Charge on Each Transaction, And What Are the Payment Options Available?
Note that crypto exchanges have the liberty to set any amount as their transaction fees. However, for competition's sake, a majority of the exchanges adopt low transaction fees business models. It is now left for you to analyze the disparities between two or more crypto exchange charges to choose the most reasonable. We advise that you focus on the long-term effects of compounded charges, particularly if you are looking to execute a high volume of trades. While transaction fees may seem negligible when assessed in the short-term, its accumulation over a long period should serve as the telling factor of the platform’s viability.
Furthermore, you should ascertain the payment options available on the crypto exchange website. This assertion holds for cryptocurrency exchanges that accept USD of other fiat currencies. Depending on the policy of the crypto exchange, you might have access to several payment options, and the charges deducted on each transaction may vary.
Who Are the People Managing the Platform, And What Is Their Track Record in The Crypto Community?
It is imperative to research the team backing your preferred crypto exchange. This will help you capture the competence of the team as well as its credibility. To do this, you should ensure that the exchange, especially the centralized one, has a thriving community, which the team engages regularly. You should also check to see the commitment level of the individuals that make up the team. A simple way to go about this is to research the crypto exchange’s community-based projects and its successes. Also, track the platform’s response to security challenges that had once questioned its credibility.
Having examined the factors that should feature in your research, the next section takes a look at how Cryptolinks went about reviewing crypto exchanges in the market and picking the best among the bunch.
What Are the Factors Considered While Compiling the List of Best Crypto Exchanges?
As it is with our culture, we opted for an organic methodology, which showcased each platform’s strengths and weaknesses. While carrying out our crypto exchanges comparison, we analyzed the global reach of each platform as well as its legal standing in major regions of the world. From there, we took a look at the customer service culture of each platform to ensure that they have the resources to cater to their customer base.
Likewise, we assessed the user experience and mobile-friendliness to gauge the platform's propensity to appeal to new entrants and a larger demographic. Liquidity and volume also came to play, as they projected the exchange’s capacity to execute orders instantaneously. Another factor that features prominently in our methodology is security checks, which helped us ascertain the measures taken to protect users’ digital assets. We expect crypto exchanges to run insured multisig wallets, and this standard was used to score the platforms mentioned in our list. Lastly, we analyzed and compared the transaction fees of each platform.
At the end of these rigorous processes, we had 75 crypto exchanges that did considerably well across all boards. We advise that you read through the pros and cons of each to identify details that could help you pick the best crypto exchange for you.