Crypto Exchanges — The Definitive Guide
Interested in Bitcoin, Dogecoin, or other cryptocurrencies?
We don’t blame you — investors all over the world are putting their money into these lucrative opportunities.
If you want to join the millions of investors trading coins, you’ll need to choose a crypto exchange.
Here’s a definitive guide to help you get started. We cover exactly what a crypto exchange is, how it works, what the best platforms are, and more.
What Is a Crypto Exchange?
Crypto exchanges can seem intimidating to the new investor, but you don’t need to be a financial guru to understand what they are.
The concept is actually quite simple — a crypto exchange is a platform that facilitates transactions that involve cryptocurrency. Essentially, the platform serves as the middleman between buyers and sellers.
With crypto exchanges, users can complete a variety of transactions.
For instance, someone might use $500 to buy Bitcoin. They can choose to hold onto the Bitcoin and wait for it to increase in value. When it goes up, they can exchange it back to USD. They may also decide to use their $500 worth of Bitcoin to buy other assets (Ethereum, Litecoin, Dogecoin, etc.).
How Does the Technology Behind Cryptocurrency Exchanges Work?
Because crypto exchanges are completely digital, they rely on advanced technology to facilitate safe, efficient transactions. Below, we try to keep things as simple as possible.
Let’s use an example to illustrate how a transaction occurs. Say someone wants to buy $200 worth of Bitcoin. They make the purchase and wait for the platform to find a seller willing to sell their Bitcoin at this price.
After connecting with a qualified seller, the exchange registers their bitcoin address as the “transaction input” on the blockchain.
Then, it registers your bitcoin address as the “transaction output” to transfer ownership to you.
When buying cryptocurrencies, users do not have to adhere to trading hours like they would when buying stocks or other assets.
The technology crypto exchanges use is available 24/7.
Decentralised vs. Centralised Crypto Exchanges
Crypto exchanges can either be centralised or decentralised. Let’s take a closer look at each type to determine which is right for you.
Centralised Crypto Exchanges
Even though most cryptocurrencies are decentralised, most exchanges are centralised.
These platforms act as an independent party between sellers and buyers. Examples of centralised exchanges include:
Centralised crypto exchanges are the most popular option largely because of the hassle-free experience they provide.
With a centralised platform, you can buy and sell at the click of a button. The platform facilitates sales and handles storage, meaning you don’t have to worry about the complexities of peer-to-peer transactions or wallets.
Users also appreciate that centralised platforms adhere to strict regulations.
Thanks to governing bodies, such as the Securities and Exchange Commission, users can trust the industry’s top platforms. These entities penalize and discredit sketchy exchanges, making it difficult for you to fall prey to phony centralised platforms.
Best of all, because centralised platforms offer fiat to crypto exchange, you can buy bitcoin in your normal currency. This accessibility makes it easy for new investors to get started in the world of crypto.
Decentralised Crypto Exchanges
Decentralised exchanges are far less common. Examples include:
Some users prefer these platforms as they eliminate the need for a third party to get involved.
Because they can complete peer-to-peer transactions, they pay fewer fees. Additionally, there’s a lower risk of hacking as these platforms don’t hold user data that thieves can target. Other perks include the ability to remain anonymous and mitigate market manipulation (fake trading, wash trading, etc.).
While decentralised exchanges might seem more advantageous on the surface, there are a few reasons why everyone doesn’t use them.
Most notably, these platforms can be intimidating for new investors. You must handle crypto wallets and remember your passwords and keys. If you forget this important information, you’ll lose your assets for good.
Another downside of a peer-to-peer crypto exchange is the lack of fiat payments. If you don’t already own cryptocurrency, you’ll have a hard time buying new digital currencies via a decentralised crypto exchange.
Decentralised vs. Centralised — Which Should You Choose?
Overall, we recommend centralised exchanges for new investors and those who don’t want to mess with decentralised platforms. Only use the latter if you are familiar with the process and willing to learn how to conduct these transactions safely.
The History of Crypto Exchanges
Wondering where it all began? Let’s take a look at the history of crypto exchanges.
When the Bitcoin white paper was published in 2008, cryptocurrency wasn’t as accessible as it is today.
The only way to get it was through mining.
You could also complete purchases online through forums, but these transactions were very sketchy. They required you to trust that the other party would fulfil their end of the deal.
People recognised the limitations of acquiring Bitcoin and sought to make it more accessible.
Thus, the year 2010 saw the launch of the first-ever crypto exchange, bitcoinmarket.com.
This exchange was revolutionary as it offered a much safer alternative to forums. However, it didn’t stick around because it lost credibility due to fraudulent trades.
Additionally, its software couldn’t keep up with the increasing number of users.
Another popular exchange, Mt. Gox, rose to prominence in 2010. From 2013 to 2014, it facilitated a majority of Bitcoin transactions. However, like bitcoinmarket.com, it ended up shutting down.
Fortunately, successors learned from the shortcomings of bitcoinmarket.com and Mt. Gox.
Coinbase, Webull, BDSwiss, and others have the security and technology to facilitate millions of transactions every day safely.
Legal Aspects of Cryptocurrency Exchanges
While the legal aspects might not be the most exciting part of crypto exchanges, investors should familiarise themselves with this pertinent information.
For instance, you should be aware that your cryptocurrency may be subject to tax depending on where you live.
In the U.K., for instance, you will be subject to the capital gains tax rules when you hold cryptocurrency as a personal investment. This info is important to know when you use a GBP crypto exchange.
Most crypto exchanges will not issue you a tax form, meaning you will be responsible for reporting any income you make. However, they have your transaction history available for download, which can be useful when it’s time to report.
When using exchanges, you should also be aware of the decentralised status of digital currency.
No government or other central authority backs its value as it would with fiat money.
So, the value of cryptocurrency lies in the value that owners and investors assign to it. If you run into problems with ownership or transactions, you’ll be on your own.
How Do Crypto Exchanges Make Money?
As you might’ve guessed, crypto exchanges make money by charging fees for deposits, transactions, etc.
See below for a complete breakdown of the general crypto exchange rates.
Many platforms don’t charge deposit fees, but some do. Deposit fees may vary depending on how much you transfer to your account, what deposit method you use, and what currencies you’re working in.
To complete your transaction, you will need to pay trading fees.
Some platforms implement flat rates, say, 0.1% of the total transaction value. In other cases, they will charge either a maker fee or a taker fee.
You will pay a maker fee when your order doesn’t immediately execute. It sits in the order book and adds liquidity to the company, meaning you’ll pay a smaller fee.
Taker fees, on the other hand, are more expensive. They are applicable when your order immediately matches with another already on the order book. You’ll be taking liquidity away from the company, meaning it will charge you a higher fee.
Some platforms charge withdrawal fees.
The amount will depend on what withdrawal method you use, whether you’re funnelling the transaction into a bank account or wallet, and whether you need a fiat crypto exchange.
If you are withdrawing digital currency, the transaction is usually subject to a flat fee. Fiat withdrawals, on the other hand, may incur withdrawal fees that are either flat or percentage-based.
As an investor, you should familiarise yourself with your platform’s fees. You’ll know how much your transactions cost and come to appreciate how fees contribute to the platform’s convenient services.
List of Crypto Exchanges
This crypto exchange list reveals a few of the thousands of platforms available:
Largest Crypto Exchanges
Want to learn more about the biggest crypto exchanges on the market?
See below for a breakdown by country. Due to the track record of each of these platforms, you can rest knowing they are dependable options.
Top Crypto Exchanges in the U.K.
Here are our top picks for UK crypto exchanges you can use (especially if you want a crypto exchange for GBP):
As one of the most popular platforms globally and one of the biggest crypto exchanges, Coinbase is an ideal crypto exchange in the U.K.
The interface is as intuitive as it gets and allows British crypto users to earn rewards.
If you want a crypto exchange in GBP that is super efficient, LocalBitcoins.com is a dependable option.
This popular, decentralised U.K. crypto exchange lets users post advertisements and connect with buyers.
This U.K. crypto exchange deals with all major cryptocurrencies, including Bitcoin, Litecoin, Ethereum, etc.
Users have the opportunity to make unique investments via mining packages.
Top Crypto Exchanges in the U.S.
Here are our top picks for US crypto exchanges you can use (especially if you want a crypto exchange for USD):
CEX.io is compatible with 70+ digital currencies and is always adding more. You’ll enjoy an easy-to-use, secure platform that’s available on a functional mobile app.
Gemini features an impressive commitment to security and protecting your investments. Thanks to its FDIC backing, it insures all USD accounts.
Coinmama is interesting as it is buy-only. While you can’t use the platform to sell or trade, it promises some of the most secure transactions available.
Top Crypto Exchanges in Japan
Here are our top picks for Japanese crypto exchanges you can use (especially if you want a crypto exchange for JPY):
Paybis has many advantages, including 24/7 live support and 5-minute ID certification. You’ll also appreciate the high limits and fast payouts.
With Coincheck, transactions under $500 are completely private for Japanese citizens. This platform is the perfect way to maintain anonymity on smaller transactions.
When it comes to the number of users and cryptocurrency exchanges by volume, bitFlyer is the largest exchange in Japan. Users enjoy quick deposits and extremely low fees.
Compare Crypto Exchanges
Choosing the right crypto exchange can be an intimidating process, especially if you’re a new investor.
Comparing platforms is essential to determine the best way to handle your investments.
Here at Cryptoholics, we’ve done the hard work for you by thoroughly assessing the industry’s top contenders. Our detailed reviews will help you sort through tons of platforms and find the one that’s best for you.
Start comparing today with the help of our crypto exchange reviews.
While you’re at it, consider bookmarking this guide. It will serve as the perfect reference on your journey to choosing the ideal exchange.
Even more, this page and our site can offer you a compass when you’re navigating the crypto terrain to guarantee you’re getting the latest advice and news possible.
Crypto exchanges make the complexity of trading cryptocurrencies simple.
All you have to do is register an account, make a deposit, and start buying/selling. As long as you’re aware of the legal aspects and fees involved, these powerful platforms can help you see big returns.
Before you choose a platform at random, check out our expert written crypto exchange reviews. Comparing different platforms will ensure you pick one that suits your investing needs.
Crypto Exchanges FAQ
Have more questions? Check out these FAQs:
What Is the Difference Between a Wallet and an Exchange?
A digital wallet functions much like a regular wallet — it’s a place that stores your digital currencies.
More specifically, it contains private keys that give you control over your assets and proves that you own them.
Having a wallet is super important when you own Bitcoin or other assets as they enable you to send and receive cryptocurrencies. They also protect your investments against thieves and hackers.
Wallets can be physical devices, though they can also be apps or online websites.
Additionally, crypto exchanges offer wallets as part of their service. However, when you use exchange wallets, you don’t have as much control over your assets.
To better protect their investments, many users transfer their cryptocurrency from their exchange wallet to a wallet they own.
How Can I See the Transactions in a Blockchain Network?
Seeing as a crypto exchange takes care of the technical stuff, you don’t have to worry about blockchain networks.
But what if you want proof of a transaction?
To see transactions in a blockchain network, you will need to use a blockchain explorer. One example is etherscan.io, the most know blockchain explorer for Ethereum.
These websites make all transactions public — anyone can view any transaction, no matter how old it is. Users can see the time the transaction occurred, the total volume, and the addresses of the sender and receiver.
Note that the coin address conceals the identity of the parties involved, meaning you can’t access their private details.
Are Crypto Exchange Fees Tax Deductible?
Yes, crypto exchange fees are tax-deductible. So, let’s say you sell $5,000 worth of Bitcoin and pay $200 in transaction fees. The $200 is deductible, so you would be able to report gains of $4,800 instead of $5,000.
Why Do I Have to Provide My Personal Information to Register at Crypto Exchanges?
Unless you use a decentralised platform, you will have to provide your personal information to register at crypto exchanges.
Some people find it annoying that they have to relinquish sensitive data. However, you should recognise it as a security measure rather than a nuisance.
Crypto exchanges require users’ information to reduce the risk of terrorists and other bad actors taking advantage of their platforms. Additionally, they use your data to cultivate a customer relationship and offer compatible investment options.