A cryptocurrency
exchange is a great place to start if you want to trade cryptocurrencies. The
purpose of cryptocurrency exchanges is to facilitate the buying and selling of
digital currencies and tokens such as Bitcoin, Ethereum, and Dogecoin, much in
the way that online brokerage platforms facilitate the buying and selling of
traditional currencies.
When selecting a cryptocurrency
exchange, it is essential to consider several aspects, including the types of
supported assets, fees, payment methods, and levels of security. When compiling
our list of the best cryptocurrency exchanges, we kept these considerations in
mind so that we could better assist you in finding the proper marketplace.
Cryptocurrency Exchanges: What to Look for
Ease of access
Depending on where you
live, state or national laws may prevent you from buying and selling crypto on
certain exchanges. Some nations, such as China, prohibit their residents from
accessing cryptocurrency exchanges.
In the US, there is a
great deal of regulatory uncertainty around cryptocurrencies, and several
states have implemented their laws. For instance, to operate in the state of
New York, exchanges must first obtain a BitLicense, and only licensed
businesses are permitted to provide specifically recognized coins. While the
majority of other states don't have laws as strict as those in New York, many
do or are planning to. The National Conference of State Legislators reports
that 31 states have digital currency-related bills pending in their legislative
sessions for 2021.
On a website or in the
terms of service, you may frequently find details on a particular exchange's
geographical restrictions as well as accessibility variables related to them,
including the national currencies that are accepted.
Security and
privacy
Your cryptocurrency
holdings are not as secure as cash in the bank or other conventional
investments because cryptocurrency is not backed by any central institution. If
you have a balance in U.S. dollars at an exchange like Coinbase or Gemini, that
money is safe since it is kept in an FDIC-insured bank account. Nonetheless,
bitcoin holdings are not covered by the FDIC.
Some exchanges offer
insurance policies to protect the digital currencies users hold on the exchange
from hacking or fraud, so you can keep your crypto safe.
Whether you intend to
leave your cryptocurrency holdings in the exchange permanently or merely store
them there temporarily before transferring them to your wallet, the security of
the exchange is of paramount importance. Take a peek at the percentage of the
exchange's assets that are kept in cold storage.
This is important
because as the value of cryptocurrencies goes up, thieves will have more
opportunities to steal them. In 2020, there were a total of 28 attacks on
cryptocurrency exchanges. The biggest one led to more than $200 million worth
of cryptocurrency being stolen from the KuCoin exchange in Singapore.
Find out how much of
the exchange's assets are kept offline. Exchanges need to keep some crypto
active to make trades possible, but it's smart to keep the majority of holdings
in cold storage, which is offline and harder for hackers to get to. For example,
Coinbase says that it stores 98 percent of customer funds offline and only 2
percent of those funds are actively traded. With that storage and its $255
million insurance policy, you have more reason to believe that your crypto
assets will be covered if they are hacked.
Search for common
online security features like two-factor authentication, which you may be
familiar with from other platforms. This means that every time you log in, in
addition to your username and password, you will also be required to authenticate
your identity in some other way, such as by entering a code you get by text
message.
In general, you may
feel safest if you stick with well-known exchanges that already have a lot of
customers. When you do business with smaller or newer exchanges that don't have
clear online descriptions of their security measures and services, you may be
taking more of a risk.
Fees
Fees are something
else to think about, but you shouldn't automatically rule out an exchange
because of its large fees. A course designed to teach novice investors about
cryptocurrency. Sometimes the larger and more well-known exchanges' higher fees
are justified by the safety nets and insurance they offer their users.
A percentage of your
total trade value is typically how exchange costs are calculated. Exchange fees
might fluctuate with market conditions, as is the case with Cash App and other
similar services. The fees you'll pay depend on whether you're the vendor or
the buyer. If you trade multiple currencies, you may incur additional charges.
When using a cryptocurrency exchange, before you deposit any funds, make sure
you fully understand the fees that will be assessed and when they will be
applied.
Liquidity
With sufficient
transaction volume, your cryptocurrency holdings will be more liquid, allowing
you to sell them when you want. This is especially important if you plan to
buy, sell, or trade your crypto. The importance of size in this context might
be emphasized once more. Trade volumes tend to be higher on the most active
exchanges.
You have a better
chance of purchasing or selling the cryptocurrency you possess at the best
price, according to Montgomery, when many deals are happening within the
exchange at any given time. Given the rapid fluctuations in cryptocurrency
pricing, you may pay more on a less-trafficked exchange than you would on one
with a larger volume of trades. Imagine you want to invest in Bitcoin and have
set your sights on a price of $32,000 or less. It's possible that your purchase
won't go through until the price has moved back up if you're using a low-volume
exchange.
Tokes offered
There are thousands of
different cryptocurrencies, but not every exchange supports them all. Popular
coins like Bitcoin and Ethereum can be found on almost any exchange. On the
other hand, you might need to do a little more research before buying any of
the newer altcoins, currencies with a little market cap, or meme coins.
Keep in mind that
these coins are usually much riskier gambles than the more well-known
cryptocurrencies. In light of this, many industry insiders advise keeping with
the industry-standard coins, such as Bitcoin and Ethereum. You should only
invest the amount of money that you can afford to lose while buying
cryptocurrency on an exchange.
Storage
The issue of where and
how to keep cryptocurrency might divide the crypto community. Many people
adhere to the maxim that "not your keys, not your coins," which
states that you should keep your public and private keys for your
cryptocurrency holdings in your possession rather than having the exchange or custody
service keep them for you.
However, if you are
just starting with cryptocurrency, it may be wise to use an exchange that lets
you store your funds in a digital wallet. You may decide to retain your
cryptocurrency in your wallet in the future, when you have gained more
knowledge about your storage alternatives or after you have expanded your
holdings. Ross, however, advises caution when dealing with an exchange that
restricts your storage options to only its own, like PayPal. With the
announcement that it will be developing a cryptocurrency wallet, Robinhood will
soon allow users to move their coins off-platform.
Ross advises that once
you gain some "street cred," you might consider relocating your
wealth. If you choose an exchange that doesn't provide you the opportunity to
withdraw your coins, you may find yourself stranded if you change your mind
later and decide you'd rather keep them in your cold wallet, for example.
Knowledge about
taxation
When filing your
taxes, declaring cryptocurrency gains or losses might be a headache. People
should make sure their tax situations are up to date as the tax situation
evolves around crypto assets, Ross adds.
Transactions using
cryptocurrency should be reported as capital gains. Therefore, you should be aware
of the USD price of your cryptocurrency both when you buy it and when you sell
it.
Robinhood, unlike more
conventional exchanges, issues a Form 1099-B detailing your cost basis and
gains and losses when you trade exclusively through its platform.
According to Shehan
Chandrasekera, CPA, head of the tax strategy at crypto tax software firm
CoinTracker.io, "when you utilize cryptocurrency exchanges like Binance,
Kraken, CoinBase, etc., they don't offer you that paperwork." Why? Because
exchanges that let you withdraw your funds can't monitor your private wallet or
the deals you conduct on other platforms. When this occurs, tax preparation
becomes more complicated since users need to use a program to reconcile their
full picture, obtain the data, and then file their taxes.
The takeaway
There are further
aspects that you, based on your individual preferences, might take into
consideration. One of the most helpful things you can do is to educate yourself
as much as you can about cryptocurrency before you invest any money in it. You
should make the effort to educate yourself. If you are finding issues and have
any questions about cryptocurrency so Primafelicitasis one of thetop blockchain development companies, they
develop full-fledged cryptocurrency exchanges that overcome the shortcomings of
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