In a previous article, we talked about crypto wallets. Today, we will discuss why you should your wallet with an exchange and what to look for in a good crypto exchange. As the name suggests, a crypto exchange is a digital marketplace that allows you to buy and sell cryptocurrencies.
Although a few investment firms allow crypto trading, they are still nascent. To get the best features and security, you need to make an account on a dedicated crypto exchange.
So, let’s get going.
If you want to buy or sell a cryptocurrency such as Bitcoin (BTC) or Ether, you will have to use a platform called a crypto exchange. Unlike traditional investment firms, it is a digital market specifically for crypto trading. Popular examples include Binance, Kraken, Gemini, and Coinbase.
Using these exchanges, you can trade your fiat currencies with any cryptocurrency you like. Not only that, you can further trade that crypto for another crypto listed on the platform. Moreover, you can either keep the cryptocurrencies in your account or convert them back into cash if you feel like it.
A crypto exchange can be classified as a centralized or a decentralized one based on its operations.
For instance, the most popular ones, such as Coinbase, Binance, and Gemini, are centralized exchanges. They act as a third party between the traders. However, a decentralized exchange, such as Blocknet, allows peer-to-peer trading of currencies.
Although a decentralized exchange is better in terms of security, it is not user-friendly. Moreover, you cannot use your fiat currencies on such a platform.
Also, centralized exchanges are responsible for 99% of the market trading volume. It means the liquidity of decentralized platforms is poor.
You can use a crypto exchange to buy, sell, and store cryptocurrencies. However, when it comes to the third part, most users prefer a secure crypto wallet. The reason behind this is that most exchanges are not regulated, and even though they are secure, there is still a risk.
If you want better options for storing your online assets, you should connect a digital wallet with your exchange. You can check our guide on how a crypto wallet works and the best one for you.
The thing about exchanges is that each of them offers great features and supports many cryptocurrencies. However, it is upon the users to decide which best aligns with their goals of investing in online assets.
Keep the following points in mind while selecting a crypto exchange.
If you read the news, you know that Bitcoin was the first cryptocurrency that broke the barriers between the physical and online worlds. It’s been a few years since that, but there are still some reservations regarding cryptocurrency, especially on the government side.
Before making an account or putting money into it, head onto the website of the exchange. The website will give you crucial information about the crypto exchange’s regulations in your country or state.
If you wish to buy Bitcoin (BTC), Ether, or any established coins, you may find them on any crypto exchange. However, if you move to the niched coins such as meme coins or altcoins, you may not get them on all exchanges.
Also, the best practice is to stick with a coin that has the most users as it will offer relatively better ratings. And even though the newer options may entice you, you should only put in the cash you are prepared to lose.
When it comes to the security of a crypto exchange, size matters. It means the more users a trading platform has and the longer it has been in the market, the fewer problems it will have. Granted no exchange is 100% secure, but some use practices that make users’ digital assets more secure than others. For instance, Coinbase has insurance for $255 million. In case of any hack, they can back if the lost cryptocurrencies amount to 255 million.
Whenever you trade a cryptocurrency using a crypto exchange or trading app, you will have to pay a transaction fee. The fees may depend on the trading platform or market you are using. For instance, some exchanges may apply higher fees in return for faster transactions. Whereas some exchanges may apply the fees based on the transaction volume.
In essence, if the users or traders want the best service from an app, they need to shell out the money for the service. However, you do not need to be afraid of the fees. Mostly, it is relatively well balanced.
This is probably the most underrated, but important factor. If you want to buy, sell, or trade a digital currency, you need to be sure that the platform should have enough users or trade volume to liquidate your assets.
Again, the size of the crypto exchange comes in the fold. This is the very reason you should avoid obscure exchanges.
Before you buy a digital currency from Binance, Coinbase, Gemini, or any other crypto exchange, you need to focus on which one works best for you. Apart from the above-mentioned aspects, you can even consider customer support. And most importantly, you should check if the crypto exchange provides materials for users to learn crypto trading. Before you pour in your cash and hard-earned money into any market, you should spend considerable time learning the platform and crypto market in general.
The risk will always be there, but if you learn before you trade, you will save yourself heaps of cash.