With the constantly expanding cryptocurrency market, more and more Bitcoin exchanges are coming to the fore with each passing year. When it comes to picking the best of these platforms, you must look at various aspects like their purpose, fees, security measures, reputation, limits, speed, etc. It’s essentially about which ones make it the easiest for you to buy/sell Bitcoins.
Here in this article we will acquaint you with all such important aspects and the best Bitcoin exchanges in 2021. You’ll also learn about the meaning of a Bitcoin exchange, different types of cryptocurrency exchanges, how to use them, key features to look for in them, and the pros & cons of using these platforms.
Compare the Best Bitcoin Exchanges
Considering there are so many Bitcoin exchanges that promise top-quality services to the prospective buyers/sellers, it can get very difficult to find the perfect one for your needs. We’ve done all the due diligence and have shortlisted some handpicked Bitcoin exchanges that can unarguably be termed as the best ones in 2021. Here’s our selection of the best Bitcoin exchanges with all their corresponding features and advantages.
Understanding Bitcoin Exchanges
During the initial days of Bitcoin, the only way you could obtain one was by either mining it or buying it directly from another individual willing to sell it to you.
Mining, ‘was not’ and ‘is not’, meant for everyone as it’s a very technical process and involves considerable infrastructural investment too. On the other hand, scouting for independent reliable buyers/sellers of Bitcoins isn’t cakewalk either; and that’s where Bitcoin exchanges come into the picture. These exchanges serve as a safer and simpler option for people to trade Bitcoins.
In simple words, a Bitcoin exchange is a digital marketplace wherein traders can freely buy and sell Bitcoins in exchange of fiat currencies or altcoin (cryptocurrencies other than bitcoin).
A cryptocurrency exchange works quite like a regular stock exchange, with the major difference being the manner in which people book profit on them. While on a stock exchange, traders indulge in buying and selling of assets to bank upon their changing prices, on cryptocurrency exchanges, they use crypto trading pairs like ETH/USD, BTC/USD, XRP/USD, LTC/USD etc. to profit from their rate volatility. Compared to stock exchanges which have set trading hours, the cryptocurrency exchanges are operational 24/7, throughout the year.
The Bitcoin exchange functions as an online intermediary between the buyers and sellers, and charges a commission for all such transactions. Please note, just like institutional banks, Bitcoin exchanges will charge you a currency conversion fee too if you choose to trade between different cryptocurrencies.
How to get started on a Bitcoin exchange?
You need to first deposit some amount of money into your account with the exchange, in a currency supported by it (fiat and/or altcoin). Thereafter, you can utilise this balance to buy Bitcoin from other members of the exchange. Alternately, you can also use the exchange to sell your own Bitcoin to others. Provided you’re dealing with a reputed and reliable cryptocurrency exchange, there is no risk of losing money because of someone not fulfilling their end of the deal.
To be able to open an account at a Bitcoin exchange and use it successfully, you must first register with the platform and complete a number of verification steps to authenticate your identity. Please note, these verification steps might vary from exchange to exchange. While in some cases, an email confirmation will suffice, other Bitcoin exchanges might ask you to upload your passport pic and complete some comprehensive KYC (Know Your Customer) checks like address verification, identity verification, etc, to comply with their anti-money laundering and anti-terrorism financing measures.
Although you’re free to use non-KYC exchanges, there’s always the risk of unknowingly buying/selling Bitcoins from/to people involved in financial criminal activities. And it would be fair to assume that none of us would like to be found on the wrong side of the law!
Once the authentication is complete, your account will be opened and you can deposit funds into it, to buy Bitcoin. Different Bitcoin exchanges offer different payment methods for deposits and withdrawals of funds. These include credit cards, debit cards, money orders, direct bank transfers, bank drafts, bank wires, PayPal, e-wallets, and more.
The trading of Bitcoins happens through ‘Buy’ or ‘Sell’ orders which are usually matched by the exchange’s system software. Whereas ‘Bids’ or ‘Buy orders’ are offers for purchasing Bitcoin in exchange for a different currency at the maximum possible price set by the offer extending person, ‘Asks’ or ‘Sell orders’ are offers to sell Bitcoin at a certain minimum price decided by the seller. In case the ‘Ask’ price of a seller is found to be lower than the ‘Bid’ price of a buyer, an exchange can happen between the two parties.
Just like a conventional stock exchange, traders can also buy/sell Bitcoin through a ‘Limit order’ or a ‘Market order’. When using the ‘Limit order’, the person authorises the exchange to buy or sell Bitcoin for a price below the present ‘Ask’ or above the present ‘Bid’ respectively. In case of a ‘market order’, the person authorises the exchange to buy/sell coins at the best available price in the market at any given point of time.
Different types of Bitcoin exchanges
Bitcoin exchanges can be of different types to cater to the needs of different users. They can be geared towards seasoned campaigners who have been crypto-trading for years or even teenagers buying a cryptocurrency for the first time. Listed below are some of the most well-known types of exchanges:
Centralised exchanges - These are the conventional and most commonly found cryptocurrency exchanges on the Internet. Each one of these exchanges is governed by its respective central organisation. Highly regulated, these platforms offer trades which can be fiat-crypto, crypto-crypto or both.
Decentralised exchanges – Unlike centralised exchanges, these are non-custodial in nature and don’t have any centralised counterpart. They use protocols and networks for automatic transfer of funds between different users and offer a comparatively higher degree of privacy.
Instant exchanges – They are another variant of non-custodial Bitcoin exchanges, but are much easier to use than decentralized exchanges. What sets them apart is that the funds can be converted almost immediately on these platforms.
Derivative exchanges - Just like traditional financial assets, derivatives such as options and futures also exist for cryptocurrencies, including Bitcoin. It’s the derivative exchanges which allow for trading of such Bitcoin-related financial instruments.
P2P exchanges - Extremely popular in countries lacking traditional banking structure, for instance, Africa, Latin America etc., Peer-to-Peer (P2P) exchanges work as facilitators of Bitcoin trades between individuals. The platform is often used as an escrow service and can be either non-custodial or custodial in nature.
How to Choose a Bitcoin Exchange?
Picking the right Bitcoin exchange might prove to be the most significant initial step you take as an investor or trader. Going with the wrong platform can potentially lead you down a road riddled with problems, distractions and plenty of wasted effort. Before looking at different Bitcoin exchanges, you must first understand what you’re trying to accomplish. For instance, do you want to regularly trade in and out of positions or want to stay invested for a few months and then sell when the time is right? Once you’re clear about your objectives, you should thoroughly examine the unique features offered by the exchanges you have shortlisted. Alternately, you can go with any of the best Bitcoin exchanges listed above which meet all the popular criteria detailed below.
Ease of usage – The platform should be easy to use, with a simple and straightforward user interface.
Payment methods – It should offer the deposit and withdrawal methods preferred by you, and charge minimum fees for each one of them.
Liquidity – The liquidity level of a Bitcoin exchange impacts the speed with which trades are completed. Higher liquidity automatically translates into higher trading volume, with quick and easy completion of trades.
Fees - Right from deposit of currency to trading and thereafter withdrawal of funds, the cost of buying and selling Bitcoin should not be significantly higher than other platforms. The crypto exchange should also be very transparent about its fee structure.
Type of trades – These platforms also vary depending upon the type of trades they facilitate. As shared earlier, there are different Bitcoin exchanges for different types of traders, for ex. derivative exchanges, P2P exchanges, decentralised exchanges, centralised exchanges etc. You should pick a platform that meets your trading needs.
Privacy – If anonymity is high on your priority list, you’d be better off with an exchange that doesn’t require you to reveal a lot about your identity.
Reputation – As cryptocurrency is still a fairly new industry, it’s important to go with the exchanges that have been around since the initial days and have never been in the news for the wrong reasons.
Security – Make sure that the Bitcoin exchange you have in mind follows the strictest and most updated security standards. While two-factor authentication (2FA) is a must, you should also look at other security factors like custodial storage services, cold storage asset reserves etc.
Advantages & Disadvantages of Using a Bitcoin Exchange
Should I Buy or Trade Cryptocurrency?
Well, there’s is no straightforward answer to this question! It all depends upon what your objectives are, as well as your knowledge of cryptocurrency trading. While buying or investing in cryptocurrency is more of a long-term undertaking, trading is a comparatively short-term endeavour.
You can invest into Bitcoin with a minuscule sum and keep increasing your investment with experience and time. However, trading is an activity which is meant for people who have thorough knowledge of cryptocurrency trading and are capable of absorbing losses.
Please also note that you don’t necessarily need to own a cryptocurrency to trade it. There are various trading instruments such as futures, options, and CFDs (Contract for Difference) that allow you to trade cryptocurrencies without the need of purchasing them. These instruments are traded at derivative exchanges.
Futures are sophisticated financial instruments which involve setting a predetermined price at which a crypto trade will be executed on a specific date in the future. High fluctuations in the crypto values makes them a very risky affair, while on the other hand anyone confident of their market analysis can use them effectively to book handsome profits.
Crypto options are quite similar to futures, however, the traders have the option or choice to buy/sell the underlying cryptocurrency at a predetermined price on a specific future date. They’re not risk free as the trader must pay a premium if they choose not to execute the trade. Like futures, using options effectively can reap great dividends!
Another financial derivative, Contracts for Difference (CFDs) allow you to speculate on the crypto price movements and take long/short positions accordingly to book reasonable profits. There is no ownership of the underlying coins and it’s a purely speculative activity. It allows traders with analytic skills to bank upon cryptocurrencies’ volatility, however, can also lead to considerable losses.
3 Steps to Using a Bitcoin Exchange
Choose a Bitcoin Exchange
The first step is doing your bit of due diligence and picking up a Bitcoin exchange that you want to trade at. We’ve made this task easier for you by listing out the best Bitcoin exchanges in 2021 above. Please note, as explained earlier, your choice of exchange will depend upon multiple factors.
Signing up with a Bitcoin Exchange
Once you have decided which Bitcoin exchange you’d like to use, you will need to set up an account on it. This will most likely involve supplying a fair bit of personal information like your name, address, email address, phone number, etc. to the platform along with some KYC-related documents to prove your identity.
Deposit initial amount and start using the Bitcoin Exchange
After completing the verification process and setting up your account with the Bitcoin exchange you can start using its services. At this point, you will need to deposit some initial amount (in a currency supported by the exchange) and can thereafter buy Bitcoin with those funds. The user-friendly Bitcoin exchanges make this process as simple as entering the Bitcoin amount you want and then clicking ‘Buy’!
To conclude, we would like to emphasise that going through a leading Bitcoin exchange remains the most preferred and commonly known method of buying/selling Bitcoin. In this article, we discussed the basics of Bitcoin exchanges, their different types, the best Bitcoin exchanges in 2021, what to look for in these platforms, their pros & cons and how to go about using them.
Frequently Asked Questions
This is in your own interest as it helps keeping unwanted elements away from these platforms, and to prevent you from unknowingly becoming a part of any terrorism financing or money laundering activity.
No, as long as you are using a reputed and reliable exchange, such as the ones listed earlier in this article.
No. The cryptocurrencies listed at exchanges might vary from platform to platform. Some support a handful of them while others list hundreds.
The buy/sell rates on a Bitcoin exchange are set by the exchange itself and are based on actions of buyers and sellers, as well as the rates offered on various other exchanges.
This is because Bitcoin exchanges are not linked to each other and the prices vary depending upon the buy/sell activity on the respective platforms.
Yes, you can potentially make a small profit as long as the price difference is good enough to cover the exchange’s fee.
Bitcoin exchanges make money from multiple revenue streams including market making, listing fees, commissions and more.
Yes, Bitcoin exchanges are legal in many parts of the world, including the United States.