How to Pick a Crypto Exchange Platform Everything You Need to Know

How to Pick a Crypto Exchange Platform

Did you know that 16 cryptocurrency billionaires hold U.S. passports? That’s impressive, considering the world is home to 19 crypto billionaires. Even more fascinating is how these wealthy individuals became rich through bitcoin.

That may help explain why 1 in 5 U.S. adults have already dabbled in some form of cryptocurrency transaction. These folks have used, traded, or invested in at least one type of crypto.

So if you’re about to join that crowd, it pays to know how to pick a crypto exchange platform. Using a crypto exchange, after all, is one of the primary methods for buying, selling, or trading crypto.

To that end, we came up with this guide discussing the most crucial steps to choosing an exchange. Read on to discover how to make the right choice, what to look for in one, and your potential alternatives.

Decide Which Cryptocurrency You Want

The use of the first-ever cryptocurrency began in 2009. Since then, thousands of other types of cryptocurrencies have gone into circulation. Today, you have over 19,000 different cryptocurrencies to choose from.

Understanding your crypto options is vital, as no platform trades them all. So, your platform choice can affect your crypto trading strategy and preferred investments.

To help you decide, below is a quick overview of the top 3 cryptocurrencies you may want to invest in. Your chosen platform should offer these three, at the least, plus multiple other coins.

Bitcoin (BTC)

Bitcoin, or BTC for short, is the first-ever crypto invented by Satoshi Nakamoto. Interestingly, no one knows if Satoshi Nakamoto is a person or an entity up to now.

As the world’s first crypto, bitcoin is still the most popular, with the most extensive user base. It also has the highest market capitalization and utility in payment transactions. So, even if it’s the most expensive crypto, you should still consider its usage.

Ether (ETH)

Ether, or ETH, is the native payment method of the Ethereum Virtual Machine (EVM). Although ETH went live six years after BTC, it’s now the second-most valuable crypto. As a result, many participating merchants and retailers accept it as a payment method.

A chief advantage of ETH over BTC is that the former may be more sustainable and energy-efficient. Ether’s so-called proof-of-stake system could reduce its energy usage by over 99%. Thus, if you’re looking for green crypto, ETH may be a good choice.

Tether (USDT)

Tether, or USDT, is a stablecoin.

Stablecoins are cryptocurrencies that aim to keep their price stable. To do that, they have to tie their price to a traditional currency.

Tether, in turn, has tied its value to the U.S. dollar. For the same reason, its trading value is nearly the same.

As of December 2022, Tether ranks the third-most valuable cryptocurrency. It also boasts a global market share of 7.7%.

Like BTC and ETH, you can use USDT to pay participating merchants. 

Understand How Crypto Exchange Platforms Work

Cryptocurrency exchange platforms are online marketplaces for direct crypto trading. Here, you can buy and sell cryptocurrencies directly from other traders. You can also trade one crypto for another or convert it into fiat money.

Once a platform has verified your identity, it then approves your account. Only after the approval can you deposit funds into your crypto exchange wallet. After that, you can start buying cryptocurrencies or sell and trade them as you wish.

There are two categories of crypto exchange platforms: centralized and decentralized.

Centralized Exchanges (CEXs)

Most centralized exchanges require users to create an account with the platforms. This process includes asking for personal data, such as your name, email, and proof of identity. It’s part of their “Know Your Customer” (KYC) protocols and standards.

One of the primary benefits of using CEXs is their intuitive, user-friendly interfaces. These features make their platforms easy to navigate, especially for beginners.

The primary drawback to using CEXs is that they don’t give users complete control of their assets. For example, they hold on to users’ private keys, storing them online in hot wallets. So if the platforms get hacked, their users’ funds may forever disappear.

Decentralized Exchanges (DEXs)

DEXs are less regulated than CEXs and have no centralized governing authorities. They also don’t keep their users’ private keys on their platforms. For the same reasons, they give users more control over their cryptocurrencies.

Some decentralized exchanges don’t require user signup, much less identity verification. So, some people who want to remain anonymous prefer DEXs. 

However, DEXs are also vulnerable to hacking. Indeed, it was a DEX that became a victim of the biggest heist to have ever occurred in the crypto world. This happened in 2021 when hackers stole about $600 million worth of crypto from the DEX Poly Network.

Mind the Exchange Platform Security Protocols

Since exchanges are hackable, the most reliable ones enforce stricter security protocols. For example, they now utilize two-factor authentication (2FA) and email verification. These additional security steps also let them align with governmental financial regulations closely.

Some exchanges now even offer biometric log-in support. This protocol requires an account owner’s face or fingerprint to log in. If this verification step fails, the account won’t be accessible.

It’s also best to choose a platform that requires authentication for most activities. For example, most reputable exchanges implement biometric identification for every transaction. They may also ask you to key in your master password or confirm your identity if you wish to make account changes.

Check Platforms Supporting Non-Custodial Wallets

Most crypto exchange platforms have their very own crypto wallets called custodial wallets. This is where they keep their account holders’ private and public keys.

A private key, in turn, is a code that lets crypto owners access their cryptocurrencies. So once you own crypto, you need this key to manage and perform future crypto transactions.

A public key, on the other hand, is like your crypto account’s or wallet’s address. You need this code to ensure the crypto you buy or trade gets sent to your account or wallet. Likewise, you must use it to confirm the crypto you sell gets taken out of your account or wallet.

So with a crypto exchange wallet, your keys are with your chosen exchange. The platform, in this case, is the custodian. For the same reason, the platform is responsible for securing your keys and assets.

However, that also means you have less say and control over your wallet and funds. Likewise, the security of your assets depends on your custodian.

The good news is that some exchanges allow you to use non-custodial wallets.

A non-custodial wallet can be a mobile app (hot wallet) or a hardware (cold wallet). It may be more secure and private than its custodial counterpart since you’ll be the one to take care of it. It also allows you to access your keys and funds anytime.

Just remember that a non-custodial wallet’s security is up to you. Therefore, you must also do your due diligence in securing and protecting it.

Choose an Exchange With Enough Liquidity

Pick an exchange with enough liquidity to protect yourself from crypto volatility.

Liquidity refers to a platform’s ability to turn crypto quickly into cash and vice versa. The higher its liquidity, the faster it processes the transaction. Therefore, it can complete your buy or sell order at a rate closest to the one you saw when you bought or sold your crypto.

One way to evaluate the liquidity of an exchange is to check its trading volume. The lower the trading volume, the lower its liquidity. By contrast, the higher the trading volume, the better its liquidity.

Another factor that can help you gauge a platform’s liquidity is its years in business. Choose one that has been around for at least five years and has a good amount of trading volume.

Compare Processing and Service Fees

Most crypto exchange platforms charge a fee for every transaction. That includes buying, selling, withdrawing, or exchanging crypto for another.

The fee varies but can be up to 5% of your trading or transaction amount. For example, if you wish to withdraw $1,000 worth of BTC, you may have to pay a transaction fee of up to $50.

To avoid unpleasant surprises, compare the fees of your prospective platforms first. Then, sign up for the one that charges the least.

Another thing to note is that your funding source may also have charges on top of the platform’s fees. For example, you may have to pay an additional 3% to 5% if you use a credit card. This is because credit card issuers consider crypto transactions as cash advances.

Ensure They Support Your Payment Methods

Speaking of credit cards, they’re not always accepted in crypto exchanges. Most platforms prefer transfers via Automated Clearing Houses (ACH) and debit cards. Others may let you use PayPal to fund your crypto exchange wallet.

Verify the Platform Has Adequate Insurance

The most reputable crypto exchange platforms pair robust security protocols with comprehensive insurance. These policies usually cover theft, robbery, acts of dishonesty, fraud, and cybercrime.

However, the actual losses covered still vary from one exchange to another. Thus, it’s imperative to check and confirm the type and extent of protection they can give you.

Also, choose an exchange offering Federal Deposit Insurance Corp. protection. This safeguards the cash you may hold or store in your crypto exchange account. Without this, you may lose all the fiat cash you have in your account if it fails.

Consider Alternatives to Crypto Exchange Platforms

Before you pick a crypto exchange platform, consider a crypto ATM or a broker first. These two also let you buy, sell, and trade cryptocurrencies. While they cost more to use than exchanges, it’s because they have certain advantages.

Crypto ATMs

Crypto ATMs look and work like traditional ATMs, except they don’t link to a bank account. Instead, they connect to a hot or cold crypto wallet.

Most crypto ATMs are unidirectional machines, permitting only one-way transactions. In most cases, they only let you buy crypto, not sell them.

However, there are also bi-directional crypto ATMs. These machines allow you to buy, sell, or exchange cryptocurrencies. They also let you withdraw sold or exchanged crypto in cash.

The primary benefit of cryptocurrency ATMs is their almost instantaneous transactions. This enables you to take advantage of price dips and hikes in near real-time.

Exchanges, on the other hand, can take a few days to process and complete transactions.

Another perk is that you can now find crypto ATMs in various locations in the United States. So, you can buy crypto right away from one of these machines when its value is low. Likewise, you can sell or trade your digital assets when their prices are high.

Thus, crypto ATMs are one of the best ways to maximize crypto trading profits.

Online Crypto Brokers

Online crypto brokers are intermediaries or middlemen between buyers and crypto markets. So when you choose a broker, you won’t transact directly with other traders. Instead, the broker processes your transactions using more security protocols.

The heftier price tag brokers charge is for their platform, which is easier to use than an exchange. For example, if you want to buy BTC, you may only have to tap a button labeled “Buy BTC” and enter the amount. The broker will complete your request immediately after, as long as you have enough funds.

Brokers usually process transactions faster than exchanges. Still, they may need a few hours to complete the process, unlike ATMs which often only take minutes.

Time to Pick a Crypto Exchange Platform

Remember: It’s best to pick a crypto exchange platform prioritizing security over anonymity. This can help give you peace of mind knowing that your assets are less prone to crimes like theft.

Besides, even if a secure platform has to verify your identity, it takes steps to keep it confidential. Whereas one with poor security is easier to hack, putting your data at a higher risk of breach and exposure.

For more informative guides like this, browse our most recent news and blog posts.

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