How to Choose Crypto Exchanges, Store Money and Avoid Scams

Exchanges are the optimal way to trade crypto, which one is the best for you?

Exchanges are the beating heart of cryptocurrency trading, and already have a daily trading volume of billions of dollars. For retail crypto traders, these exchanges are the most common (and often the only) marketplace in which they can trade coins in a convenient and safe manner. This article is intended to serve as a guidebook for choosing the right exchange.

What is a Cryptocurrency Exchange?

Cryptocurrency exchanges are online platforms that can be used to buy, sell, and trade cryptocurrencies like Bitcoin and Ethereum. Some exchanges can only be used to trade one type of cryptocurrency for another type of cryptocurrency; others support the exchange of fiat money (like dollars and euros) for certain kinds of cryptocurrency.

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There are a few kinds of cryptocurrency exchanges.

The most common kind of cryptocurrency exchange are trading platforms like Bittrex, Bitfinex, and Bitstamp. These exchanges charge fees for each transaction processed on their networks, although fees vary by the type of trade and the amount traded.

Cryptocurrency broker platforms sell cryptocurrency at the price set by an individual broker, usually the market price of a particular coin, plus a premium. The popular Coinbase app is the largest Bitcoin broker in the world.

Direct trading exchanges allow users to buy and sell cryptocurrency directly to other crypto holders. Users involved in a trade agree on their own prices, and many platforms that facilitate P2P crypto exchanges make use of some sort of system for publicizing a user’s reputation when it comes to being trustworthy.

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As there is no middleman to mediate this kind of exchange, no fees are assessed. However, this kind of exchange is regarded as being somewhat risky, as you must trust the other party involved in the trade to carry out their end of the deal.

Cryptocurrency-based hedge funds (i.e. the one run by Pantera Capital), a fairly new phenomenon, are arguably one of the safer ways to invest in cryptocurrency. They are professionally managed funds comprised of a pool of various digital assets.

Many of them have a rather high financial barrier for entry, but investors can use services like Iconomi’s Digital Asset Arrays to make their own crypto funds.

crypto, exchange
Source: Finance Magnates

How to Choose an Exchange

When you, as a cryptocurrency trader, use an exchange, you are giving that exchange a high level of trust. You trust that an exchange will safely store your funds for short periods of time, and that the exchange will protect your privacy. You trust that an exchange will offer help if something goes wrong within a reasonable amount of time, and that an exchange is actively working to guard itself against hackers and technical problems.

Unfortunately, not every exchange is worthy of its traders’ trust. Most cryptocurrencies are at least somewhat difficult to trace, and therefore, funds lost through technical errors or criminal attacks are nearly impossible to recover. The best way to protect yourself in the crypto space is to arm yourself with information. Here’s what you should know about an exchange before deciding to make use of it.

Headquarters, CEOs, and employees:

Check and see what kind of basic information is available about an exchange. Any legitimate, above-ground organization should have no issues with disclosing where it is headquartered, as well as who its CEO is and employees are. The absence of this kind of information could indicate that an exchange’s operators may not want to have any public ties to the exchange’s activity–this should be a red flag.

As the legal landscape surrounding cryptocurrency is also rapidly changing, knowing the country that an exchange is based in is rather important. Should something go wrong, your legal rights may change based on where an exchange is headquartered. An exchange may be shut down or otherwise undermined by a government that is cracking down on cryptocurrency.


It is very important to know whether or not an exchange has been hacked in the past, as well as how the exchange responded in the aftermath of an attack. If cryptocurrency was stolen, did the exchange reimburse affected users? How long did it take? Did the exchange take steps to improve the security of its network?


Researching what kind of security features an exchange makes use of is also important when choosing which exchange to trust your cryptocurrency with. At the very least, any exchange should offer its users:
2FA (two-factor authentication) for logins
PGP-encrypted email communication
Email and SMS alerts

An exchange should store most of its users’ funds offline, in cold storage. Additionally, an exchange should undergo regular financial audits to show proof of reserve, and security audits to show that its platform is well-guarded against attacks and technical problems.

Scam Exchange from bitfinex

Customer support:

Customer service across the crypto trading industry is notoriously slow and ineffective. All the same, knowing what your options are in terms of customer support is absolutely necessary. Does the exchange offer help through email tickets, live chat, or a hotline? On average, how long does the exchange take to respond to requests for help?


If you are concerned about privacy, make sure that you know what kind of identity verification is needed from you in order to deposit, trade, and withdraw cryptocurrency from an exchange. Some exchanges require nothing more than an email address; others ask that you upload a scan of a photo ID before you will be allowed to withdraw your funds.

Make sure that you know the history of your exchange with regard to how it protects its users’ personal information. For example, Bittrex (which is largely regarded as one of the most secure exchanges in the world) accidentally leaked some of its users’ passport images in customer support emails in late 2017.

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The decentralized nature of the very new world of cryptocurrency means that our peers are often the best resource that we have. What are the most common complaints that an exchange has received? If an exchange has received a myriad of reports of service outages, if there are multiple reddit threads about missing funds or blocked accounts, make sure that you think twice before deciding to use it.

Source: @T3naciousC

Trading fees:

On a typical exchange, fees generally range from 0.1% to 0.25%, changing depending on how much cryptocurrency is traded and what kind of trade (maker or taker) is being made.

Unfortunately, there is often a correlation in the cryptocurrency exchange industry between ease-of-use and higher fees. For example, buying Bitcoin on the popular Coinbase app will cost you an additional 1.5%.

Trading pairs and liquidity:

Not every cryptocurrency is available on every exchange. Therefore, it’s important to find out which exchanges support the cryptocurrency that you would like to trade.

Once you’ve discovered where to find a particular cryptocurrency, use CoinMarketCap to check and see if that coin has been traded at a high volume. The higher the trading volume, the higher the liquidity, and the less time it will take for trades to be executed.

Higher liquidity also means higher market stability–the more trading volume there is, the lesser the effect that a single trade will have on a particular cryptocurrency’s valuation.

Trading options:

What are the different kinds of trades offered on an exchange? This is a question that may only affect more experienced crypto traders who are looking for a flexible platform, or who may want to engage in margin or derivatives trading.

At the very least, however, it may be important to know whether or not an exchange offers Stop-Loss orders, which automatically sell cryptocurrency when it goes below a certain valuation.

Ease of use:

Some exchange’s interfaces are more complicated than others. When trading cryptocurrency, it is imperative that you know exactly what you are doing; mistakes can be costly and irreversible. The best way to find out whether an exchange is easy to use is to see what other users have had to say about it, or to sign up for a basic account and see for yourself.

How to Identify a Scam

While the law enforcement agencies of the world have been making moves to ensure that cryptocurrency exchanges are in compliance with federal laws, some criminals see exchanges as opportunities to quickly acquire and steal cryptocurrency or launder money.

Taking a few minutes to research an exchange’s reputation should be your first (and perhaps best) line of defense. Members of the crypto community who encounter problems with crypto infrastructure (i.e. wallets and exchanges) tend to be very vocal about their issues. If there are tons of reports about an exchange losing funds or blocking access to accounts, stay away.

Cause for Concern

An exchange engaging in atypical behavior for the industry should arouse suspicions. Any exchange or other company asking to hold onto your funds for a fixed or indefinite period of time, promising some sort of return in exchange, should be thoroughly scrutinized.

For example, a Japanese Ripple exchange operator was arrested in October for stealing about $12,000 from users. He was collecting XRP tokens from users in exchange for IOUs, even though his exchange had no way to pay users back. The operator, named Yuki Takenaka, was allegedly able to collect the funds by saying that his exchange was commission-free, according to the Japan Times.

Storing Cryptocurrency on an Exchange

Cryptocurrency exchanges are largely considered to be the least secure place to store your coins on any kind of long-term basis. Of course, it is necessary to deposit your coins onto an exchange in order to use that exchange. However, exchanges are generally much more likely to be hacked than crypto wallets (as long as the wallet is properly used and secured). So, it is best to take your coins off an exchange if you do not need them there for immediate trading.

When searching for the right way to store your coins, be sure to choose a reputable wallet. If you are storing altcoins, the best choice is often to download the altcoin’s wallet directly from its website. Some altcoins can also be stored in paper or hardware wallets. In any case, there are plenty of fake or scam wallets on the web, so be sure to thoroughly vet your choices.

If you absolutely must store your cryptocurrency on an exchange, be sure that you are taking full advantage of that exchange’s security features. Set up two-factor authentication and email and SMS alerts, and make sure that the exchange has a running history of good security.

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