Despite all the talk about mining, the easiest way to actually obtain
some cryptocurrency of your own is to simply trade fiat currency for
cryptocurrency. Just as you can trade $100 USD for Euros or Yuan at the
currency exchange in the airport, you can go to an online exchange that
specializes in cryptocurrency, and exchange your $100 USD for its
equivalent value in Bitcoin, Ether, Litecoin, or whatever other currency the
exchange is trading.
Anyone familiar with Forex, or the foreign exchange for trading
international currency, will quickly recognize where these cryptocurrency
exchanges got their inspiration. It is more or less the same thing, the only
difference being that the fiat currencies were created by governments while
the cryptocurrencies were created by decentralized groups of individuals.
Picking a cryptocurrency exchange is a lot like picking a bank or online
trading platform. If you want anonymity, you will probably not want to pick
a company based in the USA, but if you care more about ease of use and
security, you should. If you want low fees, you will probably sacrifice ease of
use or security, while exchanges with higher fees may offer more features.
It’s really up to you in the end to determine which company hits the
right balance for you of service, anonymity, ease of use, advanced
functionality, and safety.
It’s not a bad idea to shop around and see who’s
offering the best deal when trading. There are lots of exchanges out there,
but we’ll look at the top five. As you pick one (or more) to work with, make
sure you consider all of the following:
Reputation: Will this company be around in two years? Five years? If
they fold or get hacked, what happens to your money?
Low fee vs. high fee: Are lower fees worth sacrificing safety, features,
and reputation?
Exchange rate: If working with more than one comparable exchanges,
check the exchange rates. One may have a better exchange rate at
the moment you want to make a trade.
Geographic footprint: Does the exchange support your country?
Fiat currency and payment methods: Does the exchange support your
currency? How easy or hard is it to convert fiat currency to
cryptocurrency?
Cryptocurrencies offered: Does the exchange just support the top
cryptocurrencies by volume, or does it offer new and low-volume
cryptocurrencies and tokens?
ID Verification: This is a requirement in many countries, including the
US and UK. It protects against fraud and scams, but means giving up
anonymity
Platform: Does the exchange have an app for Android, iOS, or does it
just work on a web browser?
Security: Is your cryptocurrency stored digitally, where it’s vulnerable
to hackers, or do they pull it offline into cold storage when not in
use?
Founded in June 2012, Coinbase is one of the first big exchanges
established in the US. It was born in the Y Combinator startup incubator
with serious Silicon Valley cred, including Series A funding by Union Square
Ventures. Since then, the NYSE, USAA, and even some big banks have
invested in Coinbase.
The reason that all this is important is that if you’re forking over your
money to a stranger, you want to make sure that stranger is credible, and
Coinbase is about as credible as it gets in the world of legal, licensed, USbased
cryptocurrency companies.
The other reason we love Coinbase is ease of use. The US has strict
reporting standards for banks, all of which are aimed at combatting crime,
particularly money laundering and funding terrorism.
Coinbase makes it fairly simple to create an account, include a
cryptocurrency wallet, attach your bank account (just like you would do in
PayPal), and verify your identity. If the US government thinks you’re using
Coinbase to launder money, they will comply with requests for info to stay
compliant with US law.
The Coinbase exchange is called GDAX, and amazingly, they offer FDIC
insurance on any USD balances kept with them (up to $250,000) just like
any other big bank. It’s important to note that FDIC doesn’t cover non-USD
currencies, so once you convert to a cryptocurrency, there are no
guarantees. Still, for a cryptocurrency startup, this is basically the gold
standard of companies.
Given how buttoned up Coinbase is, if you’re a budding crime lord
hoping to start a drug empire on the dark web, Coinbase probably isn’t for
you. However, if you’re non-technical, and/or an investor looking for an
easy way to hold or trade cryptocurrency, Coinbase is fantastic. We use it,
so should you.
For more experienced traders, or individuals outside the US, Kraken is a
particularly popular exchange. It is supported in more countries, and does
the highest volume of trades in Euros. Similar to Coinbase, it can act as a
cryptocurrency wallet, a bank account, and a currency exchange. Unlike
Coinbase, Kraken offers margin trading and more advanced trading
features. Kraken supplies users of the Bloomberg terminal with all their
cryptocurrency valuations.
Based in London since 2013, Cex.io is another good option for UKbased
traders looking for personalized dashboards and margin trading. It
has a reputation for ease of use, good trading tools, good exchange rates,
and worldwide support. However, it also has a drawn out deposit process
and expensive fees on deposits.
For more advanced users, ShapeShift is an exchange based in
Switzerland that does not offer trades between fiat currency and
cryptocurrency. It only allows trades between cryptocurrencies. It’s a much
more stripped down exchange that offers fast trades with minimal fees, and
a huge variety of currencies.
To get up and running on the ShapeShift exchange, you would first
have to use an exchange like Coinbase or Kraken to trade your fiat currency
for Bitcoin or Ether, then move your new cryptocurrency over to ShapeShift.
Because ShapeShift does not handle fiat currency, there’s a lot less
regulation and hassle involved with using them, and they have been vocal
about resisting attempts by government regulators to de-anonymize their
users.
Similar to ShapeShift, but based in the US, Poloniex is another fast, lowfee
cryptocurrency exchange with low fees, but no support for fiat currency.
They offer over 100 cryptocurrencies and specialize in high-volume trading
between cryptocurrencies and provide advanced trading tools and
analytics.
If you live outside of the US or UK, or are just curious, there are many
other cryptocurrency exchanges out there. They are not always stable, and
are prone to hacks, but depending on your particular needs, may offer a
better option than one of the top five exchanges. Have a look at
https://www.cryptocompare.com/exchanges/#/crypto for more info.
