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Cryptocurrency exchanges play an essential role in supporting the investment sector because they help users buy and sell crypto assets quickly and easily. Since they act as digital marketplaces, exchanges offer a vast array of crypto assets, from the most popular to the newest projects. This allows users to understand the market better and increase their chances of gaining portfolio value.
Using crypto exchanges is also important because most provide tools for users to make their own predictions, which is necessary, especially for smaller assets. For instance, if you want to buy ethereum , you must use valuable data from technical, fundamental, and on-chain analysis and evaluate the market sentiment.
However, as helpful as they are, crypto exchanges can expose users to risks since they hold massive amounts of data. Therefore, hackers have targeted exchanges before, such as the Mt. Gox case, which led to hundreds of thousands of lost or stolen Bitcoins.
So here are some factors to consider before choosing your crypto exchange platform.
Security
The best crypto exchanges offer top-notch security measures to protect your assets from unwanted exposure. Since most exchanges offer an app through which you can easily access investments, you should be provided with multi-factor authentication, part of a solid identity and access management (IAM) regulation.
In addition, exchanges could also offer cold storage wallets that don’t require access to the Internet to operate. These wallets look like regular USBs, and you simply plug them in or out when making a transaction. Of course, this requires the latest encryption protocols in place for clients and servers to communicate efficiently.
But one of the best ways to check an exchange’s security is to ensure it complies with regulatory policies. These policies ensure users are protected in case of legal complications or potential scams.
Interface
Although cryptocurrency exchanges deal with decentralized assets and blockchains, their user experience (UX) should be adapted to the modern user, not the future one. We know decentralized networks include smart contracts, cryptographic keys, and other complex terms and concepts, but that doesn’t mean they can’t look approachable.
Exchanges must focus on improving UX designs to promote acceptance and increase visibility. Anything the user can understand, they will use. Otherwise, what seems too complex to handle won’t be accepted. Navigating exchanges to buy, sell, and trade cryptocurrencies should be as simple as with stocks and bonds.
Of course, developers must handle immutability and decentralization while working on reducing the learning curve, at least at the beginning of developing these apps. With simple UI, adequate DeFi UX design patterns, and the support of multiple networks, exchanges can become more approachable.
Fees
Fees are also important for saving up on transactions, significantly since crypto prices fluctuate. Crypto exchange platforms choose fees for deposits or trading differently, so depending on your level of experience, you may want to stick with exchanges that don’t max out on their fees.
It’s best to take your time and analyze the competitors’ offers because some exchanges will have hidden fees you’ll only find when making a transaction. Fees also depend on the trading volume and frequency of the platform and your own transactions. That’s because high-volume traders are incentivized by platforms since they bring in more market liquidity.
Still, if you’re a beginner and want to benefit from low or close to zero fees, it would be best to look for an exchange that offers access to the most critical assets and doesn’t require pricey expenses.
Liquidity
In cryptocurrency, liquidity is one of the most important elements for making transactions smooth and fast since currencies can be converted to other assets without impacting the prices. Therefore, when markets are increasingly liquid, this means they’re stable and less volatile. At the same time, liquidity ensures prices are hard to manipulate, so investors can analyze behaviors better.
Crypto exchanges with higher liquidity can ensure there’s less risk for investment and more chances for a proper exit strategy in which you can sell your assets. Exchanges need liquidity so traders can benefit from fast, secure, and straightforward transactions. When liquidity is low, users will have to wait until the right moment to sell their crypto.
So, check the trading volume of a crypto exchange before using it because it gives essential insight into how well the application deals with liquidity. The higher the trading volume, the better the participation from buyers and sellers.
Regulation
Although cryptocurrency exchanges handle decentralized assets and networks, they still need to comply with real-world guidelines since they build bridges between the user and the blockchain. Exchanges that follow regulatory compliance policies have a better reputation on the market because customers trust them.
One of these regulations includes anti-money laundering (AML), which prevents criminals from obtaining crypto illegally. AML is essential since cryptocurrency transactions are prone to higher risks of money laundering due to their higher degree of anonymity, cross-border transactions, and lack of centralized oversight.
Another essential guideline is to know your customer (KYC), which can limit fraud and money laundering by checking users’ identities. Although transactions can be anonymous on blockchains, it’s still possible to trace transactions and link them to addresses for identification purposes. That’s why there’s a specific KYC process for crypto that involves the following steps:
- Customer identification program (CIP) that gathers data on the user's legal name, address and verification documentation;
- Customer due diligence (CDD) rates the risk assessment of a client based on background, surveys and reviews in the case of businesses;
- Continuous monitoring is necessary to identify any potential criminal activity on blockchains and networks;
Did you choose your crypto exchange yet?
There are many crypto exchanges on the market that offer different features, but choosing the safest and most productive one can be challenging. Many exchanges have been the subject of hacks and data breaches, so it’s best to look for safety first before making an account on a new crypto exchange. At the same time, consider the app's interface and the fees required for the transactions.