From time to time, popular crypto exchanges like Coinbase get overwhelmed with service requests. They become unable to serve the high number of customers. New exchanges are opened up and traders sign up. Crypto traders are always looking for better exchange services, but this often leads them into the trap of scammers.
It’s not just crypto exchanges that scam traders. Quite on the contrary, the biggest losses come from investing in crypto startups doomed to fail. Through ICOs, the nascent financial model that enable companies to crowdfund by giving investors company-designed tokens, a lot of investors have got scammed. So high is the scam rate that nearly half of ICO startups shut down with investors’ money.
But before you invest in an ICO, you will probably have to deal with crypto exchanges. Learn the following 5 things you must always keep in mind about exchanges before using them in any way.
They are mostly unregulated
Most cryptocurrency exchanges are unregulated. They may have licenses to operate in a specific country, but cryptocurrency exchanges are not truly scrutinized by governments. This may soon change; however, as governments around the world are enforcing measures to ensure exchanges abide by a country’s laws.
In Japan, for example, nearly all top exchanges are regulated. They cooperate with the Japanese government and police agencies to crack down on any suspicious trading. The US also made a similar move in early 2018, but exchanges are yet to comply. China went overboard and banned or crypto exchanges in the countries. Japan, on the other hand, is already scrutinizing 16 registered crypto exchanges in the country.
Crypto exchanges tend to get operating licenses in countries with the least amount of regulation. They seek incorporation in countries where they don’t have to provide information about themselves. As a result, even though you may be trading on an exchange with a business license, no action will be taken on the company should if close down with your funds.
Not all are Suited for new Traders
Crypto exchanges are developed for different reasons. Some, like Coinbase, are opened up to help people buy popular cryptocurrencies with real cash. They have a simple set up and accept popular payment methods like credit cards and wire transfers. Some exchanges, like Binance, are designed to help you trade less known cryptocurrencies using popular cryptos like Bitcoin as your base currency. Such exchanges do not accept cash for trading.
Additionally, some exchanges are designed for expert traders. They have complicated user-interfaces, lots of charts and graphs that may not make sense to everyone. These exchanges will also have unique trading features like future trading, margin trading and peer to peer trading services.
If you are a new trader and you just want to buy Bitcoins or altcoins, use the following tips to identify a great exchange:
- Read reviews online about the best exchanges to easily buy cryptos
- Visit several exchanges and try navigating through the websites without depositing any funds
- Look at the design of the exchange and terms used- simple exchanges have simple designs set up with sections where you buy or sell digital assets
- Try AB method- buy Bitcoins in exchange A and evaluate ease of trading. Buy cryptos with an alternative exchange and compare your experience using both exchanges
Bitcoin and most cryptocurrencies are actually secure. They are designed using cryptography, and their underlying blockchain technologies have nearly zero chances of ever getting hacked. However, we can’t say the same about crypto exchanges. Just recently, Tokyo-based exchange, Coincheck, was hacked and more than $530 million worth of crypto funds were lost.
Between 2014 and 2018, more than 20 exchanges have been hacked, and cryptos worth over a billion dollars have been lost. And just to point out how severe crypto exchanging hacking is, here is a list of popular exchanges today that have been hacked before:
|Year Hacked||Rank based on daily Trading Volumes||Amount lost|
|Mt. Gox||2011-2014||Shut down||$450 million|
Noting that even the top 10 exchanges have been hacked, it’s important to do everything possible to ensure you do not become a victim of lost funds in a hacked exchange. One way to do that is to trade on an exchange that offers utmost privacy. An exchange like https://flyp.me/ allows you to trade up to 19 cryptos without asking for your personal info. You also don’t have to create an account on the exchange.
One thing that is clear about many crypto exchanges is that they offer poor customer services. Most of them are mismanaged, run by unqualified people who show no will to improve. Sometimes you can’t blame exchanges. With Bitcoin traders increasing day by day, the exchanges sometimes get overwhelmed with service requests. Even Coinbase, the once best-rated exchange is of late reviewed poorly when it comes to customer services.
Before you deposit funds on any exchange, read reviews about the exchange online. Visit the site and check what contact methods they offer. The best exchanges are quick to respond to customer requests. Trade on the best-reviewed exchange.
Most crypto exchanges charge you to trade on their sites. It’s expected. They are for-profit organizations after all. However, if you are not careful it’s very easy to get overcharged by trading websites. From deposit fee to trading fees, withdrawal feed to hidden charges, traders have seen it all. Before you make a trade on any exchange, check their fees. compare with our guide below:
- Deposit fees- the best exchanges charge 7% or less when making a deposit using credit cards or wire transfers
- Most cryptos to crypto exchanges have zero charging fees
- Trading fee- the standard trading fee is 0.25% for both makers and takers.
- Withdrawal fees- the best exchanges charge 4% or less in withdrawal fees
- Wire transfers take longer to complete but attract the highest charges
Some exchanges charge up to 20% of your trading fee. Always check about fees and commissions when using any exchange.
If you are not careful, it’s very easy to get trapped in a poorly managed crypto exchange. It’s easy to get convinced that 1% in trading fee is low or that the exchange’s wallet is safe. However, it’s only by researching extensively about exchanges will you find the best, most ideal exchange to use.