Over and above everything, cryptocurrency exchanges are vital infrastructure. They are conduits through which listed tokens become liquid. Exchanges are gauges from where investor sentiment can be categorically measured and token/coin priced accordingly. Technopedia says a cryptocurrency exchange is “any system that operates on the basis of trading cryptocurrencies with other assets “adding that their “core operation is to allow for the buying and selling of these digital assets, as well as others.” From this it is evident that cryptocurrency exchanges, regardless of categorization—decentralized or centralized—are here to stay. The sphere may evolve and the best–fronting and aligning their objectives with blockchain principles while simultaneously providing the best user experience, will dominate. Thus far, there are countless exchanges.
Binance is global while CoinBase is limited to certain jurisdiction. Some are decentralized and secure but a big chunk is centralized and consequently, susceptible. While others are in investors’ good books because of tier-1 security, others are liquid but “easily forgiven” despite scandals trailing its operation. BitFinex is one of them. However, today’s objective is to study some features that classify an exchange as “good”. After all, there are many cryptocurrency exchanges trading against both fiat and crypto while others pairing assets against each other with no fiat.
While searching for a good cryptocurrency exchange, always consider the below:
Compliance and location
Guiding this consideration is simple. Crypto is global and cryptocurrency exchanges are always on the lookout for the best destination that favors or even protects their operations. Remember, crypto is global but order books are centralized. Lack of regulation means there is a chance of manipulation and in a competitive field; data reveal that 95 percent are involved in unscrupulous activities as wash trading and other illegalities. However, most of these foul playing exchanges are located in countries with lax or undefined laws around blockchain. Always settle for an exchange based in countries with defined laws around crypto trading and blockchain in general. Exchanges based in the US, the UK, Australia, Europe, South Korea and Japan is a good start for novices. With strict regulators, manipulation is low and there is investor protection just in case there is a hack.
Liquidity and Fees
Liquidity is the ease of converting an asset to cash. In crypto, Bitcoin and basically most of the top-10 assets are very liquid meaning conversion has low spreads costing the end user less. Measuring liquidity is daily transaction volumes as conveyed from the exchange’s order books. However, this order book is where rogue exchanges manipulate to broadcast success and attract unsuspecting customers. Often, liquid exchanges also charge low fees depending on monthly volumes. If selling or buying huge volumes, fees will be low and vice versa.
Other factors to consider include the number of tokens listed, security, reputation and customer support. All the same, the trader or investor must do their due diligence. Always settle on trusted exchange, with open fees based on regions with clear crypto laws.
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