Criteria For Choosing A Crypto Exchange Platform (Centralized Exchanges).
Hello Steemians, I trust everyone is doing great. Last time I wrote about tips on cryptocurrency security and how you can make good research to spot a legitimate crypto project before investing your hard-earned money. Yeah, it is said we should invest what we can afford to lose, but that doesn't necessitate throwing our funds into any project. Well, you can check out the post here if you missed it [Analysing Cryptocurrency Security].
Today, we will be looking at Criteria to consider before selecting a crypto exchange platform. Most times we ignore the features of an exchange platform before using them to trade cryptocurrencies because the exchange is widely used or it was recommended by someone. But I urge you to always DYOR before making any investment decision.
Have you ever heard "Not your Keys, Not your Coins"?. I guess you have. Most of us risk keeping huge funds in centralized exchanges without properly understanding the security of our funds But this study is not focused on the security of an exchange, but rather on criteria when selecting a crypto exchange. This study is focused on Centralised exchanges. Let's have a little review on cryptocurrency exchanges.
Crypto Exchange Review
According to CoinmarketCap.com, there are currently 513 Exchanges in the crypto market with over $93.5 billion 24hrs trading volumes across all platforms. Exchanges are ranked according to the trading volume and also an Exchange score on CoinmarketCap.comand Trust Score Coingecko but both are the same. This will be explained later in this post. Both platforms are seen as the largest cryptocurrency data aggregators in the crypto market. The trading volume of an exchange is not enough information on the effectiveness of an exchange. For this reason, cryptocurrency platforms like Coinmarketcap.com and Coingecko analyze and rank crypto exchanges using a Trust score. Let's look at the ranking of these platforms.
From the screenshot above, we can see a slight difference in the ranking. Coingecko focused on the trading volume and Trust score. Meanwhile, CoinmarketCap ranked the exchanges based on the exchange score. Now what is Trust Score and Exchange Score and what factors are taken into account?
Understanding Crypto Exchange Ranking
Fake exchanges engage in wash trading thereby manipulating trading volumes. For this reason, it will be wrong to rank exchanges based on trading volumes. However, a holistic approach has been developed which takes into account different factors to obtain the rating of an exchange. Rather than using the trading volume of a crypto exchange, other features of the exchange like liquidity, cybersecurity, trading fees, team response, customer support, web traffic, past incidents, etc are analyzed to maintain the Trustscore of a crypto exchange. More information on Trustscore can be obtained here on Coingecko Blog
Criteria for Selecting a Crypto Exchange
In this section, we will be looking at some criteria a user can review before choosing a crypto exchange. You can easily get this information on either CoinmarketCap or Coingecko. Both are trusted crypto data aggregators, but I will prefer Coingecko as they have more technical information on crypto assets.
Security
Before selecting a crypto exchange, ensure that the security of the exchange is very strong. Crypto exchanges are prime targets for hackers due to the huge amount of funds stored in the exchange wallets. So many exchanges have already prepared to face any external threat from hackers on their platform. This includes cyber security measures put in place for its servers, web services, users' accounts, etc. I know you must be asking how to obtain the information on the cybersecurity of exchange, but worry no more because CoinGecko got your back. CoinGecko has analyzed crypto exchanges and ranked them based on cybersecurity measures of the exchange. So before considering an exchange, you can visit Coingecko to check the cybersecurity rank of the exchange. An example of the first 10 exchanges according to cybersecurity ranking is shown in the screenshot below.
Supported Assets
This is another criterion you should consider before selecting an exchange. Ensure that this exchange has listed the assets you wish to trade. The top exchanges are selective of the crypto assets they list on their platform. Proper security measures have been taken to analyze a crypto exchange before listing. So if you are looking to trade a certain crypto asset, you need to search for the exchange that has listed this crypto asset. Apart from that, you need to determine the particular exchange that has the highest liquidity for this crypto asset you need to trade.
For example, a few weeks ago Binance suspended Steem withdrawal due to schedule maintenance. I needed to look for another exchange to trade my Steem. First, I moved my Steem to Poloniex exchange to convert it to USDT. It was difficult to perform this trade due to low liquidity on Poloniex and there was no market order execution. I ran out of patience waiting for my order to be executed, then I canceled the order and moved my Steem to Huobi-Pro exchange to trade my Steem. Liquidity is very important when after you have selected the exchange that has the crypto asset you want to trade. From the screenshot above from CoinGecko, we can see the rank of crypto exchanges and also the number of assets and trading pairs on the exchanges.
Payment Methods
This is another important feature to be considered when selecting a crypto exchange. Some crypto exchanges like Binance, and Huobi-Pro offers their users different payment method they can easily use to deposit and withdraw their assets. I will use my country Nigeria as an example, Banks have been banned from processing cryptocurrency-related transactions and this means we can't purchase crypto with the use of credit/debit cards. But exchanges like Binance still made it possible for us to transact cryptocurrency and withdraw directly to our local banks using the Peer-to-Peer method. Not only does it provide this trading method, but it has also served as an escrow to ensure there are no fraudulent activities between buyers and sellers. This makes Binance the most used crypto exchange by Nigerians. In conclusion, ensure that you can easily purchase and withdraw your crypto assets directly to your local currency or other payment platforms.
Fees
Most traders ignore research about the trading fees of a crypto exchange. High trading fees can eat up your trading capital slowly especially if you overtrade. Most exchanges charge lower trading and withdrawal fees. Also, deposits are free in some exchanges. Another fee that can be incurred is overnight charges but I doubt most crypto exchanges charge its user for holding a position overnight. This is something you need to research before creating an account and depositing your funds. I can remember withdrawing UDST from the Huobi-Pro exchange via TRC-20 network, I was charged 2USDT to cover the transaction fee. Meanwhile, Binance charges 1USDT for withdrawing via TRC-20 network. High fees might not be noticed by a trader, but they can eat up a trading account over time. Ensure you research the exchanges and compare the fees of the exchange you want to trade your assets.
Customer Service
This is still a good feature to consider when choosing a crypto exchange. How fast is the exchange to respond to an appeal or customer's complaints? Some exchanges take ages before replying to user feedback and complaints. I remember earlier this year, Binance was called out by Nigerians over the loss of funds and freezing of their accounts. Users' accounts were frozen and requests were not attended to for months. I commend Huobi-Pro exchange customer service. They are the best I have seen so far in terms of customer service.
Exchange Reputation
One thing I always do before signing up on any platform is to research the platform and also read customers' reviews on the platform. This is not a difficult thing to do especially on a platform you are trusting your funds to. You can read blogs, and check the internet for any scandal the exchange has experienced and they have dealt with it. Have such incidents occurred again?
Platforms like Coingecko and CoinmarketCap has already helped to review and rank crypto exchanges' reputation. All the information you need to make a decision has already been analyzed by carrying out a careful review on the exchange platform.
Conclusion
Most scandals and losses investors incur are due to poor research on their investment. Investing in cryptocurrency requires a lot of research. This industry is not yet fully adopted and some platforms are not regulated by security/financial agencies. It is left for you as an investor to make adequate research to protect your funds and make good investment decisions. I believe this post will help you to make a good decision in selecting a crypto exchange. I will recommend CoinGecko to get any valuable information on any cryptocurrency platform.
Reference/Additional Information:
https://www.coingecko.com/en/exchanges
https://coinmarketcap.com/rankings/exchanges/
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