Cryptocurrency Exchanges: The Good vs The Bad
As cryptocurrency rises in popularity a common by-product is the emergence of various exchanges around the world. As exchanges are dealing with money and utilising multiple jurisdictions, as beginner or even if you are a seasoned investor it is handy to be able to distinguish and identify the good exchanges and avoid the problematic ones.
Let’s start with the basics, what is a cryptocurrency exchange? A cryptocurrency exchange is an online platform that facilitates the buying and selling of cryptocurrency, generally with fiat or other cryptocurrency pairs. There is striking similarities to the stock market and cryptocurrency exchanges should be treated just as seriously. Due to the financial nature of exchanges it can be prone to various security threats, this is why it is vital that if you are going to trade cryptocurrency that some due diligence is done when selecting the exchange.
One important factor to consider when choosing an exchange is regulation. There is not enough regulated cryptocurrency exchanges in the world. If the exchange has support and/or works together with a regulatory body you can be assured that the exchange will be placing customers safety and security as high priority. This allows a peace of mind that your money isn’t going to disappear overnight and that there is a government regulatory body that oversees the activities of the exchange to make sure that customer duty of care is adhered to.
Secondly when deciding on an exchange it is worth your while to do some research and ascertain what people are saying about the exchange. Reputation of the exchange can be a good measure of the reliability, the customer support and general flexibility of that exchange. The cryptocurrency community is still fairly small and very active online, making it easy to see what the market presence of the exchange is like.
Another more obvious factor to consider is the fees associated with the exchange. Currently this could range from start up fees to their commission structure to even the fees associated with listing certain coins on their exchange.
It is advisable to do some research in this area so you can get the lowest possible fees. Since ICOs have become a regular occurrence in the cryptocurrency community, certain exchanges have been alleged to have charged up to millions to list those coins on their exchange. There is no law against that, however asking for extortionist amounts such as millions to list a coin might raise questions that the exchange isn’t doing their due diligence and listing coins on merit. All things that should be considered when researching what the best exchange is for you.
The requirements associated with signing up and withdrawing should also be noted when deciding on an exchange. Does the signing up process require security measures such as a KYC (Know Your Customer), does the exchange take anti AML measures? All these are important as we head towards a more regulated era in cryptocurrency. In terms of withdrawals, it is always beneficial to check what kind of policy the exchange has on withdrawals. Since this is your money, you should know if there is any restrictions placed on it before you settle for an exchange.
Finally it is essential to consider the support system of the exchange and the security. Customer service will play a significant part if you are using a service such as a cryptocurrency exchange. The cryptocurrency world is susceptible to hacking, volatile price fluctuations and regulatory issues associated with various Governments. All these can be significantly less stressful to experience if the exchange provides a good robust customer service. Questions like has the exchange allocated enough manpower to handle a sudden influx of problems? Or does the exchange allow customers to withdraw upon request are all factors that need to be properly considered.
Security is vital when selecting an exchange, as mentioned prior cryptocurrencies are susceptible to hacking, still at the early stage of regulation and in essence the exchange is dealing with your money. Exchanges with good security contain some of the following features; they allow cold storage for coins, users must undergo a strict identification process, the exchange submits to audits and/or has a dedicated security team and the exchange utilises a two factor authentication system.
Cryptocurrencies is paving a financial revolution and despite being risky and volatile the benefits of getting in early will be immense. However just like anything else in life do your research and make sure that the tool that you are using (the exchange) suits your specific needs.