The number of cryptocurrency exchanges available today is increasing at an exponential rate. However, dig a bit deeper, and it quickly becomes apparent that this choice is slightly more restricted than on the surface. Below are four examples of the best cryptocurrency exchanges available world-wide – two centralized and two decentralized. They all offer the consumer varying levels of usability, liquidity, and access to the digital asset world.
One of, if not the main cryptocurrency exchange and fiat trading points, Coinbase operates within the USA. As a result, the company is required, by law, to comply with all U.S. laws and financial regulations, at both a federal and state level. Some of these laws and regulations include:
- The state money transmission laws and regulations.
- The Bank Secrecy Act.
- The USA Patriot Act.
- Registered as a Money Services Business with FinCEN.
- New York Custody Licence.
These regulations create what financially is known as accountability, something which is often lacking with exchanges located in other parts of the world. For example, for all the 31 countries that Coinbase operates in, none apart from the USA require an official license to conduct cryptocurrency operations or transactions. Furthermore, industry backing is often a good litmus test of trustworthy credentials, and with investors including Blockchain Capital, and Digital Currency Group, Alexis Ohanian (Reddit Co-Founder) and the Bank Of Tokyo, one imagines the exchange is in good company.
As a registered and compliant financial cryptocurrency exchange, Coinbase segregates customers funds from the companies operational funds. These funds are held in custodial bank accounts, and means they will never be used to operate the business. Known as creating a ‘firewall’, this practice is common amongst major banks, and is a great indictment of the seriousness of which Coinbase is operated – it even protects users against an unlikely insolvency.
How It Works
98% of customers’ cryptocurrency funds are stored in secure cold storage (offline) These cryptocurrencies are held on multiple hardware wallets and paper wallets, with the physical cryptocurrency wallets then stored in vaults globally. The remaining portion of cryptocurrency, that is stored online, is fully insured by a syndicate of Lloyd’s of London. The fastidious lengths they go to in securing users funds means that it is likely the safest non-personal custodian of cryptocurrencies.
What’s more, United States residents are covered by FDIC insurance, up to a maximum of $250,000. This certainly adds to the ‘safety’ feature of Coinbase. Despite this, customers are still liable if their personal accounts become compromised via a hack, virus, or other means.
Coinbase offers its users a variety of features to secure their personal accounts.
For example, multiple 2-factor authentication( 2FA) methods are available to add an extra layer of security. This can comprise SMS codes, or a more robust Google Authenticator app. Your account activity can also be tracked, dispatching an extra confirmation email if the IP address is not recognized.
As a US-based company, cryptocurrency holders have access to 24 hour customer support. Generally, feedback is positive, with the majority of cases that fall within their terms and conditions solved.
Despite falling revenue and site visitors, Coinbase is still considered the de facto method of fiat to cryptocurrency exchange. Its user-friendly interface and non-tech appeal will remain a compelling factor for some time yet. High fees and large spreads are often criticisms of the platform, however, they seem relatively fair business practices considering the complex and unapproachable nature of much of digital currencies.
Binance is arguably the most popular centralized cryptocurrency exchange in the world. Started in China, Binance recently moved their headquarters to the cryptocurrency-welcoming Island of Malta, in the EU. Despite the company being relatively new to market – launching only last year – it gained an incredible popularity, thanks to its professional attitude and active and friendly CEO and also due to its low trading fees.
Praised for its coin offerings, Binance supports a multitude of digital currencies. Traders have access to a variety of trading pairs, including Tether and TUSD, as well as BTC, BNB, and ETH. The exchange has listings of all the major cryptocurrencies – including; Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, EOS, Dash, LiteCoin, NEO, GAS, Zcash, Dash, Ripple, Stellar and more. Aside from the ‘established’ currencies, Binance supports numerous tokens, as part of its ICO listings service. New tokens are added quickly, and therefore have access to the platforms enviable liquidity.
Binance ICO – the BNB Coin
Native to the platform is Binance’s own coin, issued during their own ICO. The Binance coin (BNB) can be used to pay trading fees. It also forms part of their future endeavors to create a Decentralized Exchange, where it will act as one of the key base currencies.
Whilst Binance is technically one of the ‘newest’ major cryptocurrency exchanges available, it has attained an impressively high level of trust from traders and the cryptocurrency communities. Information regarding how users funds are secured, or vaulted, are still yet to be fully disclosed. Two-factor authentication is available, however, and combined with both multi-tier security system architecture.
As an example of their exemplary security protocols, hackers attempted to compromise the exchange in March 2018. For months, hackers had phished people’s logins details and secretly installing API access on the affected accounts. They managed to convert their targets holdings into BTC before purchasing Viacoin, pumping the coin to an all-time-high before selling their own holdings of Viacoin, before trying to withdraw the BTC to their own wallets. The Binance security team identified the attack, freezing the hackers accounts and donating their funds to charity. Affected users were reimbursed.
Multiple 2-factor authentication( 2FA) methods are available to add an extra layer of security for traders of the platform.
With a matching engine capable of processing approximately 1.4 million orders each second, as well as exchange support on nearly all platforms and multiple languages, Binance offers an unparalleled user cryptocurrency trading user experience. Tradeoffs including centralization, potential hacking vulnerabilities of users funds, and the growing Tether scandal make sure that it isn’t a ‘perfect’ cryptocurrency exchange. However, no other centralized trading product comes close to offering all of the features and liquidity that Binance does.
StellarX recently launched their fully-featured frontend UI and app for Stellar’s built-in decentralized exchange (DEX) mechanism. While this constitutes more of an ‘app’ for Stellar’s protocol proprietary DEX, it still marks a seminal achievement for the decentralized exchange ecosystem and the Stellar protocol itself.
Users can sign up with an email address, electing to either secure their private key via a password, or to store and validate transactions with a Ledger Nano S. Once logged on, assets can be traded against XLM, the base currency of the protocol. Tokens can then be traded and then withdrawn via the anchor, through a process called ‘establishing a trustline’.
Now part of Interstellar, the development team hark from such projects as OkCupid, Kickstarter and more. Serious industry credentials and a knack for creating usable, accessible projects, StellarX seems likely to go from strength-to-strength.
Excitingly, StellarX offers zero fee trading, as well as human-readable addresses (yourusername*stellarx.com). Direct USD deposit functionality (currently $1,000 minimum) is also available, as is the 1% annual interest on your XLM holdings from the network, directly into your wallet. The minimum deposit amount should be lowered with greater adoption, and more fiat denominations will be integrated soon.
How It Works
By leveraging the Stellar protocol, transactions are confirmed, on-chain, within 5 seconds. Trading pairs are denoted in XLM, with an increasing amount of cryptocurrency anchors and fiat stablecoins to trade against. Moreover, due to the microscopic fees of the Stellar network, StellarX refunds all trading fees, making this app truly free to use. The user interface is currently being updated to support more advanced trader functionality, such as a night mode, and market makers are being invited to create liquid order books.
As a DEX, neither StellarX or the Stellar Development Foundation will ever have access to your wallet, assets or private key. In short, the exchange is decentralized. Users retain what is referred to as ‘sole custody’ of their funds. Being able to not only trade directly from your personal cryptocurrency wallet but trade anything tokenized on the Stellar network, is a groundbreaking feature of the protocol facilitated by StellarX’s great UI. The possibilities of what you can trade are, therefore, potentially limitless.
Some risks remain, however, such as attack vectors from phishing attempts and keylogging viruses to compromise your private key. However, these risks are endemic to all cryptocurrency holders and are arguably much smaller when compared to a centralized exchange acting as custodian for your holdings.
With more liquidity and trading pairs coming online over the next few weeks, as well as $20,000 weekly market maker rewards, this is currently the DEX to choose, and a great alternative to centralized exchanges.
Whilst technically a protocol layer, 0x offers ‘relayer’ exchange functionality for the Ethereum network. The 0x cryptocurrency and platform is a protocol that allows for a peer-to-peer exchange of ERC20 tokens and assets on Ethereum. This network circumvents Ethereum scaling issues by queueing transactions ‘off-chain’, only processing them on the Ethereum network when an order needs to be filled. In effect, the 0x protocol enables its users to self-operate a globally viable and decentralized exchange. This decentralized protocol is a free service for its users with any decentralized application, or Dapp, able to interface with it.
CEO Will Warren and CTO Amir Bandeali are the cofounders and lead developers of the 0x protocol. Warren has experience with applied physics research and mechanical engineering at UC San Diego. Bandeali was a finance student at the University of Illinois and is a former income trader at DRW. Both Warren and Bandeali are considered experts in smart contract development.
Several high-profile venture capital businesses and private investors back the protocol layer. These venture capital businesses include Blockchain Capital, FGB Capital, Jen Advisors, Pantera Capital, and Polychain Capital.
How it Works
The 0x protocol allows users to process decentralized ERC20 token exchanges in a hybrid off-and-on-chain manner. These exchanges are initiated by smart contracts. All such Ethereum transaction fees are paid via a fee called, ‘gas’ and settled via the trader in ZRX – the native currency. This is to ensure that all transactions by miners are transacted promptly on the blockchain.
0x offers inbuilt, enhanced security and autonomously initiated smart contract protection. The protocol development team envisions that in the future there will be thousands of variations of the Ethereum token. The Ethereum platform allows for the creation of signature cryptocurrencies through the use of decentralized applications.
By providing a trustless, secure and efficient way for Ethereum users to exchange their signature tokens, developers believe that such exchanges will be commonplace in the near future. In that sense, the 0x platform is ahead of the curve of potential, burgeoning ERC20 exchange service needs.
0x offers a novel and potentially revolutionary way of addressing Ethereum’s inherent scaling and fee issues. With such a plethora of tokens and assets available on the wider network, creating an accessible platform to trade these tokens is paramount for the survival of the ecosystem. The recent listing of ZRX on Coinbase will certainly add to the accessibility and reach of the network. If Ethereum can solve its own scaling issues, then a protocol-layer like 0x will surely become one of, if not the default protocols for the Ethereum network.
Cryptocurrency Exchange Conclusion
With four very different iterations of cryptocurrency exchanges and many more besides, blockchain consumers have never had more choice. With the renaissance of decentralized exchanges, that choice has become even greater. Fees, user-friendly interfaces, safety, and accessibility seem to rank highest when customers are looking for a platform they can rely on, as does local jurisdiction.
How the competition between the established centralized incumbents and the decentralized upstarts pans out remains to be seen. As with most things in business, some form of equilibrium and market share percentage will establish itself alongside the maturation of the space.