Few people took cryptocurrency seriously when Bitcoin’s genesis block — the first-ever link in the blockchain — was mined in 2009. Today, crypto can’t be ignored. It’s in government employees’ pension funds. It’s part of the Federal Reserve. Large companies like Tesla have invested in it, and hedge funds have embraced it, too.
By now, everyone who saw crypto as little more than a silly tech gimmick and a black hole for irresponsible investors is proverbially kicking themselves. You could have been among the lucky few who bought 1,309.03 BTC for a dollar. You weren’t, but you also know it’s not too late to get started now.
The second best time to plant a tree is today — and you’re ready to dip your toes in.
The only issue? Investing in crypto is a little more complex than buying gold or silver. You need to overcome some tech hurdles before you’re good to go. That starts at the beginning, by getting a handle on what a crypto exchange is and how to choose the best platform for buying, selling, and trading coins.
It’s OK if you don’t know anything beyond “I think I need an exchange to get crypto” right now. By the time you’re done reading this, you won’t just know what a crypto exchange is. You’ll also know how to choose one — and be well on your way to diversifying your portfolio with a decentralized currency completely independent of fiat.
First Things First: What Exactly Is a Crypto Exchange?
Crypto exchanges — also called coin exchanges — are platforms where you can buy, sell, and trade various cryptocurrencies. They’re essentially somewhere between a farmers’ market (buy one thing, get another), a bank, and a stock exchange. Most people investing in crypto (or just buying some to take for a test drive) use a coin exchange.
Beyond the trading function, the core purpose of the exchange, many exchanges also have custodial services, price discovery features, order books, and even lending and borrowing services. Two basic types of exchange exist, and that’s important to know before you start Googling.
Centralized Crypto Exchanges
Centralized exchanges are businesses that act as intermediaries. They are more regulated and less anonymous, but also safer and easier to use. Working with a centralized crypto exchange requires you to create an account and confirm your identity, and you can definitely expect some transaction fees, too.
Because the exchange controls your private keys, and you don’t, it’s absolutely essential to have a high level of trust in the platform you choose. If the exchange goes down, your crypto can go “poof.” On the plus side, centralized exchange make fiat withdrawals easy — and they have dedicated customer support services. This is where most people will want to start.
Decentralized Crypto Exchanges
Decentralized exchanges are for peer-to-peer crypto trading. Trading works by connecting your wallet to the wallet of the person you’re trading with. You stay in control of your private keys, and the process is far more privacy-friendly.
There’s no customer service, you’d still need a centralized exchange for fiat withdrawals, and issues with smart contracts — or even simple mistakes — can lead to a loss of funds. We’ll skip these for now.
What Next?
Bitcoinmarket.com, now no longer operational, was the first-ever exchange, while Coinbase is the first major crypto exchange to have survived all the way from Bitcoin’s early days to the present — playing a huge part in popularizing crypto and making it more accessible to crypto virgins along the way.
The exchange market is a lot more complicated now, though, and you can pick from many different platforms. The question is — how do you start?
How to Choose a Crypto Exchange (Read Carefully!)
Excited to buy your first crypto? That nearly always starts by choosing a coin exchange, and it’s one of the most important decisions you’ll make in relation to crypto. Make sure you get it right, starting with this checklist.
1. Safety First: Reputation, History, and Security Measures
Security is everything, so that’s where we’ll start. Do your own security research even if you’re on the verge of picking a very well-known exchange with a very long history, because crypto exchanges can improve or devolve over time.
Questions you need positive answers to include:
- Is the exchange based somewhere with strong financial regulations (like the US, EU countries, UK, or Japan), is it licensed in your jurisdiction, and does it comply with anti-money laundering and know your customer laws?
- Does the exchange require two-factor authentication? Are (more secure!) hardware tokens, like Yubikey, an option?
- What percentage of funds are in cold storage at any given time? Most?
- Do they have insurance to cover hacks and breaches?
- Do they include regular third-party (independent) security audits in their process to protect users?
- Will the exchange notify you in case of any security breaches?
There’s also a question you ideally want a negative answer to: Has the exchange ever been hacked or suffered a major security breach? “No” should not inspire confidence on its own if the exchange is new. Most exchanges are targets for hackers. What you really want to know is whether your funds are safe if the one you choose gets hacked — and an exchange’s handling of (minor) security breaches that happened in the past can give you valuable insights.
2. Basic Practical Considerations
We could have started here, but security is too important not to put it first. This is where your process starts to get more personal, because an exchange that’s perfect for someone else may not even be in play for you.
Check all of these points:
- Is the exchange you’re considering available to people of your citizenship living where you live?
- Does the exchange accept the payment methods you want to use to buy crypto?
- Does it support deposits and withdrawals in your local currency or the currency you want to use to trade?
- Are the cryptocurrencies you’re interested in (or might be interested in soon) available?
- What’s the daily fiat withdrawal limit for the exchange? Does that suit you?
If you all these questions get a “yes,” what’s the depth of the exchange’s order book? What’s its trading volume over a typical 24-hour period? This determines “slippage,” which means the value difference between trading and execution.
3. UX and Customer Support
Once you have an account, you want to be able to find your way around the exchange you choose with ease — and that means you should get to know and assess the platform’s user experience ahead of time.
You can start by looking around on the websites of different coin exchanges (and checking if there’s a mobile app). Do you like the interface? Are there tutorials and FAQ pages? Use YouTube for a closer look, because you can’t see the full interface unless you already have an account.
Also check the customer support options for the exchange you’re considering. Phone? Email? Live chat? Ideally, all of the above. How responsive are they? Check reviews and test it out with a question about account setup.
4. Fees
Checking the coin exchange’s fee structure is the next item on your list. This can get complicated. In general, you should know that fees differ for makers and takers.
Makers are people who place limit orders; they want to buy or sell if a currency reaches a specific market value — and if it does, that happens automatically. They make the exchange more liquid and get lower fees.
As a first-timer, you’ll probably want to buy, for example, $500 worth of BTC (insert any other currency and amount). That will translate to a market order (which the exchange places on your behalf); you want to buy now, regardless of the price. That makes you a taker, a word to describe someone who makes the exchange less liquid. You’ll have higher fees for now, and you’ll want to check what they are — while also taking note of maker fees for future reference.
Other fees to look into include deposit fees, which depend on the payment method you use, withdrawal fees, conversion fees, and potential account maintenance fees. Staking, where you get rewards for holding particular cryptocurrencies, also often comes with fees.
As with traditional currency exchange offices, exchanges also charge an exchange rate that differs from the current market value. You already know that airport exchange offices often charge exorbitant fees, while those in town have friendlier rates. It’s the same with crypto exchanges, so do your research.
A Few Beginner-Friendly Crypto Exchange Options to Get You Started
The decision-making checklist above doesn’t cover everything you might possibly want to know about crypto exchanges, but it’s a very solid way to evaluate your options if you’re completely new to crypto. Above all, it’s designed to be neutral — we don’t want to steer you in any particular way, and the research tips can be applied to every coin exchange you consider.
It might not, on the other hand, give you any pointers on what to do next. Depending on how much (or how little!) you already know about crypto, that leaves you with one logical next step. Googling “crypto exchange.”
We don’t want to do that to you. Here’s a look at a few beginner-friendly crypto exchanges to get you started with your research. They’re all well-known with solid track records, but they’re here to give you options to apply the checklist to — and not endorsements. After all, an exchange that’s perfect for one person can be out of the question for another.
1. Coinbase
Coinbase has been around since 2012, and it’s one of the first names you’ll hear when you start looking for a crypto exchange. The sign-up process is easy, it has a user-friendly interface that’s not too hard to master for beginners, and it lets you trade a massive variety of cryptocurrencies.
It’s well-regulated and insured — and although Coinbase had several major security breaches in the past, those incidents have led the platform to tighten its security. Coinbase has lots of learning resources, which is handy, but because they’re a big platform, customer support can be slow.
High fees are the main con, but you might not mind that so much if your priority is to ease in gently.
2. Gemini
Gemini supports fewer cryptocurrencies and fiat currencies than Coinbase, but it is well-regulated, available across the US (and beyond), and all currencies in its custody are insured. It’s very user-friendly, but its fees are on the higher side.
3. Kraken
Kraken is another popular US-based crypto exchange. Founded in 2018, it has a long track record, excellent security, and lower fees than the first two exchanges on the list. Kraken’s advanced trading tools are quite likely to intimidate newcomers, and this exchange is not as beginner-friendly as the other two — so get ready to figure some stuff out.
4. Bitstamp
Bitstamp was founded in 2011. It’s based in Luxembourg and mainly designed for European users. While Bitstamp has excellent security and is well-regulated, its trading volume is lower than the other exchanges on this list. Bitstamp’s user-friendliness is a big reason to add it to your list of platforms to look into.
A Final Word
Don’t rush into anything — choosing your exchange is a big deal, and you want to get it right.
Make a shortlist of potential candidates and run through all the pros and cons of each before making a final decision. Stay in the loop — platforms like Reddit and YouTube can give you handy insights into what it’s like to use a particular exchange in practice, and bring concerns you might not have thought of to the surface. When in doubt, prioritize security and user-friendliness over lower fees!
You have one goal — to finally join the world of crypto and start trading — and you have to start somewhere. Your first exchange doesn’t have to be your final or only one, so give yourself space to learn through a reputable, noob-friendly exchange.
