Crypto exchanges are essential to the crypto industry as they enable users to easily participate in the crypto market. Crypto exchanges present opportunities for individual retail traders like you and me to execute transactions that would otherwise have been impossible – think copy trading, yield farming and staking.
With a plethora of options to choose from, it is hard to discern which exchanges are trustworthy and which are more risky, especially in the wake of the spectacular collapse of FTX, the second largest crypto exchange in the world.
With the increased negative sentiment toward cryptocurrency (investors losing their portfolios and users losing confidence in crypto as a whole), many exchanges have stepped up to the challenge of rebuilding trust through transparency and accountability.
So, what defines a crypto exchange?
A crypto exchange is a digital platform where buying and selling of cryptocurrencies takes place. Many people, both in and out of the crypto community, consider crypto exchanges one of the most significant innovations in the crypto industry.
Before the introduction of crypto exchanges, you could only trade crypto through unverified intermediaries, which increased the risks of scams and fraud.
With the introduction of crypto exchanges, you can easily buy and sell cryptocurrencies directly from the platform using fiat currencies and other cryptocurrencies. Apart from trading, exchanges also offer other products and services such as yield farming, staking and many others.
Read more: Cryptocurrencies – An Introduction to the Top 10
Building Certainty in Uncertain Times
Unfortunately, in 2022, many cryptocurrency projects have tried, and failed. This coupled with a bearish market and exacerbated by the recent FTX crash, it’s no wonder the community as a whole is feeling uneasy. In order to rebuild trust in crypto, several things need to be put in place.
Factors to Consider While Choosing a Crypto Exchange
The aftermath of FTX’s collapse saw many crypto exchanges scramble to publish their Proof-of-Reserves (PoR). This employs a secure data structure known as a Merkle tree, which aggregates the total of all customer balances without exposing any private information. This verified data is the first step in lending some credibility to the particular exchange.
Let us explore what other factors you should consider when choosing a crypto exchange.
When choosing a crypto exchange, the top thing to consider is its security. Consider this: you store your funds on an unsafe exchange and it gets hacked, all of your cryptocurrencies could be compromised in an instant.
Undoubtedly, hacks on crypto exchanges have happened in the past, most notably the KuCoin hack in 2020, where hackers stole over $281 million worth of cryptocurrencies.
Security is a very broad topic, so what should we specifically look out for?
Simple. You should consider their internet security standards, authentication process, KYC enhancement, and audits. For example, BingX, one of the leading crypto exchanges, recently completed a strategic Audit Report with CertiK to Enhance User and Asset Security. While checking the security of a crypto exchange, you should also look at its user protection programs, which include insurance of user funds.
One main reason why crypto exchanges and crypto projects fail is a lack of transparency. A crypto exchange should be as transparent as possible to give users all of the information they need to have peace of mind about their crypto. .
Perhaps if FTX was transparent with how they handled users’ funds on their exchange, their fall from grace could be avoided. As mentioned earlier, this Proof-of-Reserve report was done by many exchanges such as Kraken, Crypto.com, OKX and BingX, which served to restore and strengthen user confidence.
In addition, a crypto exchange should also be transparent about the fees they charge on their platform (Maker and Taker fees), their terms and conditions, and their mode of operations.
Available Cryptocurrencies and Trading Pairs
Another characteristic of a legitimate crypto exchange is the cryptocurrencies and trading pairs offered. What is the purpose of using a crypto exchange if there isn’t a multitude of cryptocurrencies to trade?
Understandably, Bitcoin and Ethereum are the first choices of many beginners in the crypto industry. However, a crypto exchange should have more than just these to include a diverse number of altcoins, stablecoins and even memecoins.
Deposit and Withdraw Options
It can be very frustrating when your chosen crypto exchange has only one deposit and withdrawal method, which may not support your needs.
Before choosing an exchange, you should always check out their withdrawal and deposit options before registering an account. Diverse payment methods ensure users can conveniently use their services.
Most of the larger exchanges allow users to make deposits through the bank, credit/debit cards, and other third-party payment options. It is also advantageous to allow users to make deposits and withdrawals using USDC, USDT, BUSD etc.
Credibility and Track Record
As with any brand, reputation and track records speak for themselves. In the crypto world, this applies as well. You can determine whether a crypto exchange is suitable through simple research and reviews by other users.
Another consideration would be any awards, achievements and licenses that the exchange has obtained, which will go a long way in justifying its credibility.
Lastly, it would make a statement if exchanges had solid partnerships and collaborations with other well-known and well-run organisations that are in completely different industries. This would enhance their reputation and build up a strong case for their branding.
Read more: Should You Be Invested in NFTs?
Some Cryptocurrency Exchanges to Consider
Easy-to-use platform for beginners looking to buy and sell a nice selection of cryptocurrencies but with slightly higher fees compared to some of its competitors.
One of the oldest U.S. crypto exchanges that was founded in 2011. It offers a solid stable of cryptocurrencies with low trading fees.
Well-suited for crypto traders of any skill level. The platform is packed to the brim with scores of features, like its unique Gemini Earn program for earning interest on crypto holdings.
This exchange has a very good selection of over 400+ cryptocurrency pairs and margin trading products with low fees.
One of the leading crypto social trading exchanges that offers spot, derivatives and margin trading. Their unique copy trading feature enables new traders to follow the trades of more experienced ones.
Choose, and Learn Well
Beyond just choosing the most suitable crypto exchange to trade, crypto education is essential. Knowing the basics and what to look out for in crypto projects will empower you to choose the right assets to invest in, as well as with proper risk management.
It is scary to know that many new traders are merely following the hype and going about blindly with the trends without really knowing the fundamentals of the tokens they’re buying (ie. use case, tokenomics). Thus, choosing the right crypto exchange is the first step, the onus is on you to learn and develop trading strategies and analysis for what comes after.