There is no doubt that crypto has not simply taken the world by storm, but it is now a part of the global economy. Many people aren't interested in investing because they consider crypto somewhat opaque compared to conventional fiat currency.
Nonetheless, it is far simpler to get into than many think. All you really need is to sign up for an exchange in which you can trade your fiat money for the cryptographic token of your choice.
The purpose of this post is to tell you what an exchange is and some important things you should consider when choosing a trustworthy one to buy your first cryptocurrency!
What Is Cryptocurrency?
Cryptocurrency is a digital currency that uses cryptography for security and encryption and primarily exists online. The currency can be used as an investment, but it can also be used to pay for goods and services (however, this is typically limited to the top five tokens such as Bitcoin and Ethereum, etc.).
They use a decentralized global ledger of transactions called blockchain, which relies on cryptography for security and encryption and can be traded through various exchanges worldwide. The main draw is that they are decentralized and not controlled by any state actor such as a government or banking institution (unless created by those actors).
What Is An Exchange?
A crypto exchange is a marketplace where people can trade cryptocurrencies. A cryptocurrency is a digital asset that shows signs of cryptography or encryption.
There are many types of exchanges, but they all have in common that they offer an online platform to buy and sell crypto assets. When you want to trade on an exchange, you need to set up an account with them first, deposit your funds, and start trading.
What To Look For In An Exchange?
Cryptocurrency exchanges are not all created equal. It is vital first to research the reviews of these exchanges, so you know which one is best for you. It is also essential to consider the exchange fees, security, and safety before signing up.
Security
Cryptocurrency exchange security is crucial for ensuring that cryptocurrencies are not lost, stolen, or hacked. Security procedures vary from one exchange to another, but they rely on a set of common principles. The security of your exchange of choice is arguably one of the most important factors to consider, as you could find yourself severely out of pocket if things go wrong.
Although it might seem as though crypto is a safe asset due to its cryptographic nature, according to HedgewithCrypto, there have been $2.71 Billion of assets stolen from various exchanges since 2012. In light of the fact that most of these thefts were caused by hacks that breached their security, that is an alarming figure.
Therefore, security should be the first thing on your mind when looking for an exchange to use. You should look for things such as:
- Two-factor authentication (2FA) adds an extra security layer to your account. Most well-known exchanges offer this option, and some even mandate it, which is a good thing.
- They should offer instant notifications as soon as activity has been logged with your account. This can include depositing, withdrawals, and anything else that might indicate some form of intrusion into your account and enables you to act quickly.
- Strong Know Your Customer (KYC) procedures. While it can seem like a hassle to provide lots of personal information and wait to get verified, it is for the greater good of the community and reduces the general cyber security threat.
Nevertheless, while the previous paragraph makes it look like they are inherently unsafe, most of these thefts occur due to insufficient user diligence.
For example, it is recommended that you immediately withdraw your assets into what is known as a wallet as soon as your transactions have been completed. This is in contrast to keeping them on the exchange. These wallets are far more secure and remove the threat of someone stealing all of your tokens.
Types Of Exchange
Different types of exchanges are categorized by the types of tokens they allow to be traded and how those trades are conducted. The most common exchanges allow trading between two different kinds of cryptocurrencies.
Retail
Retail cryptocurrency exchanges provide a marketplace for people to buy and sell cryptocurrencies online. It facilitates the trading of one cryptocurrency with another.
A retail crypto exchange can also refer to a traditional currency or digital token, such as USD, EUR, etc., on the blockchain. These are usually the most straightforward to use and where most transactions occur.
Peer-To-Peer (P2P)
A peer-to-peer cryptocurrency exchange is a platform where buyers and sellers can trade cryptocurrency only using the platform as a facilitator to match up individuals.
These are less well-known than retail versions and are typically used by those looking to make larger trades.
Decentralized (DEX)
The idea behind decentralized exchanges is to remove as many third parties as possible to allow more direct trading. By doing this, the community believes that decentralization will create an exchange where users can trade more freely and with less risk.
They Should Offer A Large Number Of Tokens
An exchange that doesn't offer a decent selection of tokens is not worth looking at (outside of some specialist options). Therefore, when you are searching for a marketplace to buy your first crypto, you should ensure that the one you choose has a wide variety of coin offerings. Pretty much all exchanges will offer the leading players including:
- Bitcoin
- Etherium
- Litecoin
- Bitcoin Cash
- Tether
However, to get the most bang for your buck, they should also provide some of the lesser-known altcoins, which give you a far greater potential to profit from.
The larger coins are great for holding onto as a hedge against other bets, but it is always best to have a wide range to choose from so that you can make your choice the more experienced you become, without having to sign up to multiple exchanges.
Choosing an exchange need not be a challenging task, but you must know what to look for. Outside of coin selection, security will be the most significant factor.
You must be sure that any exchange you choose has robust security measures in place and is clear about what they expect from you to keep your account secure.
