THE TOP 5 CRYPTOCURRENCY EXCHANGES
In the last few articles, we have looked at DeFi (decentralised finance), blockchain gaming companies, and NFTs.
One of the common threads that links all these topics — and something that, in almost all instances, you can’t be involved in these spaces without using — is cryptocurrency.
So how, and where, do you buy and sell your cryptocurrency? In a cryptocurrency exchange. The main features you’re looking for are an easy interface, low fees and strong security protection.
What is cryptocurrency?
Crypto is a prefix (from the ancient Greek kryptos) that denotes hidden or secret. Cryptography is the use of mathematical codes for secure, encrypted communication; hence cryptocurrency, such as Ethereum or Bitcoin, is digital currency that uses cryptographic encryption tools and processes for extra security.
These currencies (also known as coin) are used as a medium of exchange within a peer-to-peer decentralised financial system, in other words, on a blockchain. More than 5,000 types of cryptocurrency are in circulation.
Note that the word crypto, used on its own, generally refers to the cryptocurrency space. Another handy term is altcoin, which means anything that isn’t Bitcoin. And the entire space is sometimes called the cryptonomy.
All transactions of cryptocurrency are recorded on the blockchain, like a ledger. These blocks of data are immutable, which means they cannot be altered, or hacked.
What is a wallet?
This is used to store, send and receive cryptocurrencies, by interacting with blockchain networks. It is accessed by two keys that function together: public and private keys, which work like digital passwords. The public key is your address, and identifies your wallet publicly, so that people can send you payments. The private key is used to authenticate ownership — to prove that you are the owner of the wallet.
Without this, you cannot access your electronic funds, or receive funds that are sent to you. No one else can access your wallet without both keys, so you must keep them safe. In some cases, the cryptocurrency exchange holds your assets in its own wallet.
A hot wallet needs an internet connection, and its digital keys are stored on a mobile phone or other device. These are more liable to hacks and theft, but are more easily accessible and therefore more convenient, than cold wallets, or cold storage, which are offline.
What is a cryptocurrency exchange (CEX)?
A place where you can buy, sell and trade cryptocurrencies. You can buy cryptocurrency using fiat currency (such as pounds sterling or euros), as well as trading between different cryptocurrencies in pairs.
The digital trading platforms mentioned here are centralized exchanges, private companies which need to see your personal ID in order for you to register as a customer on their platform, and start trading. This is called KYC, or know your customer, and is aimed at transparency, and avoiding money laundering.
Be aware that smaller transactions incur higher fees proportionately, and the Pro version of these platforms are aimed at more experienced traders moving larger volumes, with lower fees. Be aware that many marketplaces charge high fees for using bank cards.
The companies listed here are aimed both at newbie and experienced traders and investors. For those who are just starting out in cryptocurrency, their websites and apps have clear instructions, sometimes with step-by-step videos, showing how to use their products and services. All have mobile phone apps for greater convenience.
Useful facilities and terminology in CEXs
Most exchanges offer extra facilities such as limit orders, which allow you to buy or sell crypto only when it reaches or exceeds a set price. You can set a time limit on these orders.
Look out for taker/maker fees: these are charged when the trading order has been carried out. A taker is someone who places a trading order that is immediately filled (this fee is generally higher) with an existing order on the order book; while a maker fee means that a trade order has not been matched with a buyer or seller on the order book. The order stays until someone else fills it at another point.
1) Binance
This is the world’s largest cryptocurrency exchange, by some margin. Founded in Hong Kong in 2017, it is registered in the Cayman Islands and is worth around $19bn.
The main benefits of Binance are low fees, and a wide range of altcoin cryptocurrencies — more than 400, including ETH (Ether, for Ethereum) and DOGE (Dogecoin), as well as BTC (Bitcoin). Binance has its own coin, BNB. Note that there is a separate entity, Binance.US for users in the USA.
This is an easy-to-use platform for buying, selling and converting tradable cryptocurrencies. It has exceptionally good security, and a hot wallet is included.
On Binance you can trade using US$, USDC (stablecoin) and BTC. Be aware that the platform has issues with regulation in the US, UK and other countries, although this is also the case with several other currency marketplaces.
The CEO of Binance, Changpeng Zhao, has been known to engage publicly with other high-profile crypto movers like Elon Musk. In November 2021, Binance limited withdrawals of Dogecoin, and Musk cast aspersions on the marketplace, which led to a series of Twitter exchanges.
2) Coinbase Exchange
This cryptocurrency marketplace was founded in 2012 as a place to send and receive Bitcoin — it now has 73 million users in more than 100 countries, with $327bn in trades per quarter.
Coinbase Exchange currently has 141 currencies available/supported for trade, including BTC, ETH and DOGE, as well as ADA (Cardano), SOL (Solana), SHIB and (Shiba Inu).
The user interface is very straightforward and untechnical — they say that their mission is to “increase economic freedom in the world”.
You have the choice of a Coinbase-hosted wallet, which is easy to set up, and removes the risk of losing your private key, or a self-hosted wallet. With the latter, the customer controls their own private wallet keys, which is also called self-custody, or non-custodial. In this case, you must be sure not to lose your private key, or you will lose your assets.
Coinbase went public in April 2021, using a direct listing or DPO (direct public offering) for existing shares, rather than an IPO (initial public offering) where new shares are created and sold by an intermediary. It was valued at more than $100bn at the time.
3) Kraken
This is one of the most long-established crypto exchanges, and one of the first Bitcoin exchanges, dating from 2013. Named after a huge mythical sea monster, it is based in San Francisco, California and has customers in 185 countries. Kraken is valued at $650 million.
Currencies available to trade include BTC, ETH, EOS, DOGE and ADA — around 100 in total, which is fewer than other marketplaces. Fiats are Swiss Franc, Japanese Yen and Australian dollar, in addition to Euros, pounds sterling, and US dollar.
Kraken has a more effective verification process than its competitors, and you can earn interest on your investment on the basic platform.
Along with Coinbase, Kraken provided market data on bitcoin trading to Bloomberg in 2014. In June 2021, CEO Jesse Powell announced that the company plans to go public in 2022.
4) Gemini
Based in New York, this was launched in 2015 by the Winklevoss twins (hence the name), Cameron and Tyler, who studied at Harvard with Mark Zuckerberg. They sued him for taking their idea for Facebook (they’re the preppy rowers in The Social Network), and are now set to move into the Metaverse to compete with him.
Unusually for such a digital trading platform, Gemini is regulated by the New York State Department of Financial Services (NYSDFS), and has high security standards. In 2016, it became the first licensed Ether exchange.
Gemini supports almost 70 crypto currencies, such as BTC, ETH and DOGE, but not BNB or ADA. Its native cryptocurrency, the Gemini dollar, is a stablecoin tied to the US dollar, and the mobile pay app is widely accepted in the US. Like Kraken, The Winklevosses are considering an IPO.
Currencies can be traded in about 20 pairs, mostly including either USD, BTC or ETH. Gemini does not allow either margin or short trading. Users’ crypto is held in cold storage, while fiat is stored in a hot wallet.
5) Crypto.com
Founded in Singapore in 2016, this superbly-named company has 10 million customers in 90 countries, and its market capitalization is $13bn. For added celeb cachet, Matt Damon is its brand ambassador, and it has sponsorship deals with Formula One and Serie A Italian football league.
Crypto.com supports more than 150 currencies, including ADA and DOT (Polkadot), as well as BTC, ETH and DOGE, as well as more than 20 fiat, such as the Brazilian Real (BRL), in addition to Australian, Canadian and US dollar plus euros and pounds sterling.
It also offers a broader selection of crypto products than other exchanges, such as NFTs and the MCO prepaid Visa card, where you can load both fiat and crypto to spend; its native currency is CRO, which is given as rewards on purchases made with the card.
As you can see, a wide range of cryptocurrency exchanges is available, covering hundreds of types of coin, both digital and fiat. Once you know what type of wallet you want, and the volume of trading you will be engaged in, and therefore the fees you’ll be liable for, you can make your selection. Cryptocurrencies are a highly volatile investment, so you should go in with your eyes wide open.
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