It is great that you have decided to enter the new world of cryptocassets. Welcome to the club!
However, it is very important to plan this step wisely, so that you don’t rush yourself into what is better known in crypto community as Fear of Missing Out or FOMO. Cryptoassets are here to stay and the market is constantly moving and windows are always forming. No worries!
There are around 190 exchanges operating around the globe. A number of which is located in legal jurisdictions with less or no regulations to govern their operations. Due to this fact, experts emphasise the importance of conducting a rigorous background check of any exchange you wish to join before signing up or transferring any money.
The following are some of the aspects which I take into consideration before opening an account with an exchange.
Do Your Research (DYR). One can’t emphasise enough the importance of conducting a thorough research before sending any money to a third party. Plainly, you don’t want to send your money to someone who will disappear overnight.
Do your homework and research google and visits forums such as Bitcointalk and reddit, and other specialised websites like Medium, where you can find wealth of information from the crypto world. Visit coinmarketcap.com, a website dedicated to cryptoassets’ financial data and lists all the cryptoassets and exchanges. It sorts exchanges based on trading volume. Always go for exchanges that are showing a high trading volume as this is a healthy sign indicating a high trading activity, and thus a high liquidity.
Determine the type of exchange you prefer to use. There are three different types of exchanges. In a nut shell, the majority of us use a “Trading Platform”, which is a marketplace where potential buyers and sellers can place” buy” and” sell” orders.
The other two types are the “Peer-to-Peer platform”, where buyers and sellers meet, discuss the deal, agree on a price and then seal the deal. As far as I am concerned there are only 2 platforms from this type. The third type is a “Crypto Broker” which acts like a Forex broker.
Check the exchange’s risk management policy. Of course you don’t have to be a specialist in systems security to do this. Just conduct a good google research to find out from the exchange’s website or forums such as reddit what is the risk management policy in place. For example, Coinbase stores its Bitcoins in a cold storage around the globe, and hold 98% of your assets in a cold storage.
Nevertheless, experts always advise investors not to store their assets with any third party. The centralized architecture security protocol adopted by exchanges means that you need to deposit your tokens and coins directly to the exchange, which makes them susceptible to hacks.
Check regulations in your country of residence. In certain countries, mainly developing countries, cryptoassets of all kinds are forbidden. The central bank issues a ban to all banks operating in the respective country, whether local or international, to refuse any transfers, deposits or withdrawals from or to exchanges. It is important to check for any regulations of that kind in your country.
Despite the fact that the USA is a developed country, it adopts a very conservative approach towards trading in cryptoassets. Therefore, due to regulatory hurdles many exchanges are not allowed to register investors from the US. So far Coinbase, Gemini, and Kraken are allowed to operate and register investors from the US.
Here is a list of exchanges that I have put together. Of course, it is not exhaustive, yet it has the most relevant information to help you understand the differences between exchanges.
Decide on your preferred cryptoassets pair.
You need to know that not all exchanges deal with Fiat. Some of these exchanges accept deposits, trades and withdrawals only in cryptoassets. Binance, one of the biggest exchanges, asks customers to make a deposit only in crypto. Other exchanges would allow you to make a deposit, trade and withdraw in fiat as well as crypto. It is just down to your personal preference and how you like to conduct your trades. Personally, I prefer to deposit and trade with fiat vis-à-vis crypto, and when I need to cash out, I like to see money hitting my bank account.
Registration process and due diligence. Trustworthy exchanges adhere to certain standards which have an impact on the registration process. Obviously, different exchanges have different standards and registration requirements. Also, the location of the exchange plays a significant role. As we mentioned earlier, some legal jurisdictions have looser regulations and less or no checks and balances mechanisms in place.
However, there are certain standards which have become a rule of thumb and considered part and parcel of the due diligence process.
For example, Know Your Customer (KYC) means that the exchange will need to verify your identity. They will ask you to submit a scanned ID, proof of residency and bank details.
KYC is a smaller part of the Anti-Money Laundering regulations (AML) and Counter-Terrorism Financing (CTF). These regulations may prompt the exchange to ask you to verify where large sums of money originated from. Further, the exchange may monitor suspicious activities and report cash transactions exceeding $10,000, and monitor and report market manipulation, which was the case in May 20018 when the American Court of Justice investigated Bitcoin price manipulation.
Finally, I have a few simple tips for you to keep you safe from scams, hacks or loss of wealth.
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