4 Things to Know about Cryptocurrency Exchanges

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So, you’ve finally decided to get into the exciting world of cryptocurrency, and you’re ready to buy your first Bitcoin or one of the other digital currencies that have caught your fancy. The only thing left to do is actually buy one. But where? Your safest bet is to use a cryptocurrency exchange. There are more than 300 cryptocurrency exchanges today, so choosing one can be a whole new quest in itself.  

But is this really a good time to purchase cryptocurrencies? Some financiers say that yes, 2021 is a good year to buy cryptocurrencies. Bitcoin, for example, is reaching all-time highs. And despite the digital money’s price swings, it has undeniably appreciated by leaps and bounds in the past years. Financial institutions are starting to adopt cryptocurrencies, signaling their acceptance as an important segment of the financial world.  

It wasn’t always that way. At the dawn of the cryptocurrency age, you could only get a piece of cryptocurrency through mining or if another person sold it to you directly. Neither option is practical for most people, so the adage of necessity being the mother of invention has proven true once again. A simpler and safer method of buying cryptocurrency was created—the cryptocurrency exchange.


Definition of Cryptocurrency Exchange

A cryptocurrency exchange is a platform that enables traders to buy and sell cryptocurrencies using other digital or fiat currencies. It’s an intermediary between buyers and sellers of digital currencies. In some ways, a cryptocurrency exchange and a regular stock exchange are similar. However, a regular stock market is more regulated than a cryptocurrency exchange.    

Before you make your first cryptocurrency trade, here are a few things to know about cryptocurrency exchanges:

  • The First Cryptocurrency Exchange

The first exchange wasn’t any of the leading exchanges today. It was something called Bitcoinmarket.com, a platform that’s now unfortunately defunct. The person who was the putative founder of this platform used the handle ‘dwdollar,’ and had envisioned it as a place for people to safely and easily buy and sell Bitcoins. It was first proposed on January 15, 2010.  

It was a propitious time for the platform as a cryptocurrency exchange was badly needed. Bitcoin’s price wasn’t established yet, as there wasn’t any consensus on what its value was. One of the earliest price charts goes back to July 2010 and it lists Bitcoin at $0.08. However, at the time bitcoinmarket.com was launched in March 2010, Bitcoin was priced at $0.03.

Bitcoinmarket.com had an unfortunate experience with PayPal in 2011. After that debacle, the first cryptocurrency exchange faded into obscurity and was overtaken by other newly established exchanges. Nobody today is sure when its last day of trading occurred.

Nowadays, there are hundreds of cryptocurrency exchanges you can choose from. Check this site out to help you choose where to buy cryptocurrency.

  • The Exchange Checklist

Before signing up for your first exchange, use this list to find an exchange that’s right for you:

  • Availability in your area

Is the exchange doing business in your area? Some exchanges don’t do business in some countries. You might want to check their availability first before doing anything else.

  • Reputation

Is the exchange well-regarded? Check also its reviews and see if its customers are happy. And don’t forget the quality of its security—how secure is their site? How is the exchange viewed by people? Reddit and Twitter can help you check an exchange’s reputation.

  • Rates

Exchanges rates can be different from one exchange to another. Check the rates of at least four exchanges before choosing which exchange to sign up for. For comparison, this site shows the latest prices of top cryptocurrency coins.

  • Registering at an Exchange

A crypto exchange is where buyers and sellers of cryptocurrencies meet. But to participate, you have to register first. Any person can register and create an account at an exchange. The types of verification may differ—some exchanges consider an email confirmation is enough while others require people to upload a passport photo. These are purportedly to ensure exchanges follow rules against money-laundering.   

The actual steps may vary from exchange to exchange, but the basics usually are the following:

  • Sign up as a user and provide your basic information.
  • Wait for a confirmation email for account activation.
  • After account activation, follow the actual registration process.

After completion of the know-your-customer (KYC) process and its authentication, you can open your account and transfer funds, whether cryptocurrency or fiat currency. After your account is verified, the next you should do is download a wallet where you can store your cryptocurrencies.       

  • Types of Cryptocurrency Exchange

Some crypto exchanges deal with different products and services besides digital money, while others deal solely with cryptocurrencies. When choosing which exchange to sign up for, take into account your financial goals and how much risk you’re willing to take. The following are different types of exchanges you might stumble upon:

  • Brokers

These are traditional securities brokers who also happen to dabble in trading with cryptocurrencies. They can serve as agents, or ‘brokers,’ between buyers and sellers of cryptocurrencies. With brokers, anyone can visit them and buy cryptocurrencies at prices established by their company.

  • Centralized Cryptocurrency Exchanges

This type of exchange is overseen by a third party. This third party, also known as an exchange operator, makes sure that sign ups and the trading as a whole go as smoothly as possible. A centralized exchange enables you to easily link your bank account or debit card for easy crypto transactions. These services come with fees in addition to the trading fee. A lot of centralized crypto exchanges let investors trade using other cryptocurrencies or fiat currencies.  

  • Decentralized Exchanges

This type doesn’t have a third-party overseer but relies instead on peer-to-peer trading. This makes it possible for individuals to trade directly with each other, with no intermediary. A potential trader would post a listing of the number of cryptos they’d like to buy or sell. An interested party could respond and the negotiation would be between them. This type is potentially safer since hackers have no central servers to attack. However, peer-to-peer requires technical know-how.           


Conclusion

Financial experts are bullish on cryptocurrencies for 2021, and many are finally considering trying digital money. That’s why it’s important for an investor who wants to dabble on Bitcoins and other digital currencies to know about where to safely and easily trade on these types of currency—on cryptocurrency exchanges.   


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