Lesson 9: How To Find The Best Bitcoin Exchange

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In the last lesson, we explained how bitcoin mining works, including how new blocks are added to the bitcoin blockchain. We talked about how miners receive a reward – in the form of bitcoins – for their contributions to the network. Miners use specialized equipment – like advanced computers stored in massive data centers – to mine bitcoin.

Today, we’re focusing on bitcoin exchanges. You’ll learn things like:

How to separate good bitcoin exchanges from bad ones

How to avoid losing your bitcoins to a hacked exchange

How to verify your identity and start trading bitcoin as soon as today

How Bitcoin Exchanges Work

The bitcoin network does not need exchanges in order to operate. Bitcoins can be bought and sold on a peer-to-peer basis. If you find someone willing to buy bitcoin, then you can transfer bitcoin to that person with no centralized party – like a bank or an exchange – required.

However, this P2P exchange system isn’t practical in the real world. That’s why we need exchanges.

The primary role of a bitcoin exchange is to collect orders from people who wish to buy bitcoin, then match those orders with people wanting to sell bitcoin. This is the “order book” of a bitcoin exchange.

Today’s top exchanges process millions of dollars in bitcoin transactions every day. They match bitcoin buyers with bitcoin sellers. They facilitate price discovery in bitcoin markets, basing the price of bitcoin on whatever the last buyer paid for 1 BTC.

Exchanges play another crucial role: exchanges store your money. You can deposit your bitcoin into an exchange, for example, and leave it there.

As we learned in our discussion on bitcoin wallets, however, it’s rarely a good idea to leave your money in an exchange. Exchanges can be hacked or suffer a glitch. You should only temporarily store your bitcoins in an exchange.

How to Choose the Perfect Bitcoin Exchange

Choosing the perfect bitcoin exchange isn’t as hard as you think. Today, there are hundreds of exchanges from which to choose. Every major cryptocurrency exchange in the world offers one or more bitcoin pairs.

Some exchanges allow you to buy and sell bitcoin in exchange for USD, EUR, GBP, and other major fiat currencies. Other exchanges only allow you to buy or sell bitcoin for Ethereum, Litecoin, or other cryptocurrencies.

In addition, some exchanges ban customers from certain countries, while other exchanges are welcoming to users from all over the world.

Here are some things to consider when shopping for a bitcoin exchange:

Deposit Methods:

Some exchanges only accept deposits in cryptocurrencies. Other exchanges accept deposits in multiple fiat currencies. Some exchanges let you deposit money using a credit card, while others accept bank transfers and other easy payment methods. Make sure your desired exchange has your desired deposit method.

Nationality:

Want to convert your Canadian Dollars, Australian Dollars, or another national currency into bitcoin? You’ll have to use a local exchange. Smaller cryptocurrency exchanges offer AUD/BTC or CAD/BTC pairs. These exchanges are typically based in their respective countries, making it easy to transfer money using local transfer methods – like BPay in Australia or INTERACT E-Transfer in Canada.

Available Cryptocurrencies:

If you just want to buy bitcoin, then you’ll find bitcoin is available on every major exchange. However, if you’re interested in alternative cryptocurrencies like Litecoin, Ethereum, Stellar Lumens, Ripple, or anything else, then you might want to double check to ensure those cryptocurrencies are listed on your desired exchange.

Safety and Security:

All exchanges claim to offer strong safety and security. Not all exchanges, unfortunately, live up to that promise. Some exchanges have suffered major data breaches in the past. Try to choose an exchange that genuinely emphasizes the highest level of security for customer funds.

High Liquidity:

If you’re choosing one of the most popular bitcoin exchanges, then liquidity is unlikely to be an issue. However, if you’re signing up for a smaller exchange – like a local bitcoin exchange – then you may encounter liquidity problems. Low liquidity can make it difficult to buy or sell bitcoin at your desired position. Low liquidity can make it difficult to fill your order in a timely way.

Identity Verification Requirements:

Most major cryptocurrency exchanges require complex ID verification. Don’t be surprised when an exchange asks you to send a picture of your government-issued photo ID, for example, or a selfie of you holding that ID. Exchanges need to comply with KYC/AML verification requirements, and that means you cannot be anonymous on these exchanges.

Top 10 Best Bitcoin Exchanges Today

One of the best ways to find the best cryptocurrency exchanges is to look at a website like CoinMarketCap to find the most popular exchanges by trading volume. If an exchange is consistently within the top 10 by trading volume, you can rest assured that it’s popular among millions of bitcoin users.

Here are the top ten leading bitcoin exchanges based on their consistent position among the highest-volume exchanges:

Binance

OKEx

Poloniex

Huobi

Bitfinex

Bithumb

Bittrex

GDAX

Kraken

HitBTC

All of these exchanges are consistently ranked among the highest by trading volume. They each complete well over $100 million in trades every day. Most of the exchanges listed above accept customers worldwide. Some exchanges, like Bithumb and Huobi, target users in specific countries like South Korea.

Ultimately, choosing an exchange isn’t rocket science. It shouldn’t be difficult or frustrating to choose an exchange. You’re not marrying someone. You’re not committing to an exchange for the rest of your life. You can sign up for dozens of exchanges then pick the one with the prettiest UI. Overall, the exchanges listed above will offer a consistently strong user experience when buying bitcoin online.