Most people know cryptocurrency exchanges as platforms where cryptocurrencies can be bought and sold. And although that is completely true, there is a lot more to them than that.
Before you jump in and sign-up or start to trade on a cryptocurrency exchange, there are a few things that you really ought to know:
Not all exchanges allow you to buy using fiat currency
Out of the thousands of exchange platforms that are out there, only a small percentage actually support fiat currencies. The rest are restricted to cryptocurrency to cryptocurrency trades.
If you intend to purchase tokens using fiat currency, you should check in advance whether or not the exchange supports it – and what type of payment options are available.
There are different types of cryptocurrency exchanges
Contrary to popular belief, there are actually different types of cryptocurrency exchanges. The most common is definitely centralized exchanges which are controlled by a single entity, or decentralized exchanges that enable the trustless exchange of tokens between two parties.
Aside from that, there are broker exchanges as well as hybrids that are often a combination of centralized and decentralized.
Most exchanges cater to a specific location
The majority of cryptocurrency exchanges cater to specific locations. In part that is due to the regulations governing cryptocurrencies that differ from one jurisdiction to the next.
If you intend to find a BTC trading platform, you should make sure that it caters to your location and is compliant with the regulations.
Anonymity is overrated
If you’re hoping to find an exchange that offers you anonymity, you’re probably going to be out of luck. Most exchanges nowadays are compliant with KYC (Know Your Customer) regulations and require identity verification of some form or other.
To be perfectly honest if an exchange is not KYC-compliant it is a red flag and you’ll want to check very carefully to make sure it is reputable and reliable.
Liquidity can help to avoid delays
Sufficient liquidity is key when you look at cryptocurrency exchanges. Without it, the speed of your transactions may be compromised and it may even affect the prices as well.
Although exchanges may not disclose their liquidity up front, you can estimate it by looking at their recent trading volume. The higher it is, the faster and smoother your trades should be – and the less likely that the price will be affected.
Security is a two-way street
While you should definitely look at the security measures that are offered by cryptocurrency exchanges, you should also remember that security is a two-way street. In other words, you will want to take steps on your end to protect yourself.
Some of the common security features that you should look for in an exchange include two-factor authentication, fund cold storage, and proof of reserve. However, on top of that, you should take other steps to secure your computer, including using a firewall or VPN, scanning for viruses, and so on.
It should be noted that these are by no means the only things that you should look at when you’re trying to find a cryptocurrency exchange. Instead, there are many other factors that you’ll also want to weigh such as the fee structure, interface, support, and so on.
Think of this list as a quick introduction that lets you know some of the most important aspects of exchanges and what you need to keep an eye out for. If nothing else you should be starting to see just how diverse they really are, and why it is important that you take your time when choosing one.