Bitcoin exchanges act as gateways to access cryptocurrencies. The first one launched back in 2010, where Bitcoin traded for about $0.003, which shows how far the coin has come, trading at around $40,000 per coin at the time of writing.
The entire cryptocurrency sphere has gained huge popularity over the last few years, with several regulated global exchanges entering the space, allowing easy access to these digital currencies for everyday people to invest and interact with.
Many are now wondering which are the best Bitcoin exchanges in 2021. In this guide, we will present some of the most popular choices.
Our List of the Top Bitcoin Exchanges
If you are getting started with cryptocurrencies, you might find it challenging to select the best platform that efficiently meets your needs. And it's not surprising, given there are over 300 platforms in existence today. We have taken great care and due diligence to list some of the best Bitcoin exchanges, based on the unique features and the benefits of each.
What Is a Bitcoin Exchange?
A Bitcoin exchange is a platform that allows you to buy and sell cryptocurrencies like Bitcoin. These platforms will allow you to trade the coins you buy, through various methods, including direct trade through P2P networks. The platform acts as an intermediary between buyers and sellers, matching buy and sell orders. Some of these platforms could be centralised where they are run by a single entity or decentralised where different nodes are in charge of network governance.
Both types of crypto exchanges offer different benefits, as we will see below, but they also have their downsides. Additionally, some platforms will allow the user to access advanced trading where they can use leverage to bolster their trades.
How Do Bitcoin Exchanges Work?
To access a Bitcoin exchange, you have to visit the official website and register an account. If the platform is allowed to operate in your country, this should be an easy and straightforward process to sign up by offering your personal details like name, email address, and phone number. Once signed in, some will require you to identify yourself before accessing various services on offer.
The identity verification process will require you to offer an official document like a government-issued ID and a utility bill. This is in line with know your customer (KYC), and anti-money laundering (AML) rules these platforms abide by in order to combat fraudulent behaviour. Some exchanges will allow you to buy BTC without completing KYC, which is great for those that want to remain anonymous. However, there is a risk, since such platforms lack the regulations that provide oversight.
Once the account is verified, you need to make a deposit before you can buy Bitcoin. Various platforms will support different payment modes like bank transfers, credit/debit cards, e-wallets, crypto, etc. You can choose the most convenient mode for you. Once the funds are in your account, you are able to make the purchase, which should be a straightforward process on most platforms. If you are stuck, seek the help of customer support.
After buying, you can store your coins on the exchange, or opt to withdraw to a private wallet if you wish to sell your coins on the platform's dashboard. You can also set your own terms, and if a matching buy order comes in, the trade will be automatically executed. As for withdrawals, different platforms will offer different ways to withdraw your funds. You have to choose the most convenient way for you.
Using an Exchange Vs a Broker
The main difference between a typical Bitcoin exchange and a broker lies in what they offer. A typical exchange will allow you to access the asset itself. You can buy and sell BTC itself and even store it in your wallet. This is great for those who want to own the digital asset and maybe even hold it for the long-term.
As for a broker, you have access to derivative products of the main asset, which in this case is Bitcoin. These are financial instruments offered through CFDs, where traders can apply leverage, allowing a boost to the amount of capital they have. On a brokerage platform, you don't have to worry about holding and storing the real asset as you are merely trading on the price movement.
Types of Exchanges
Below we will go over different types of exchanges that allow one to buy and trade Bitcoin and other cryptocurrencies.
- Centralised Exchanges
Centralised exchanges represent the best way for beginners to buy and sell Bitcoin since they aren't complicated to use compared to some other decentralised platforms. They act as intermediaries between the buyer and the seller, facilitating such things as bank transfers to purchase digital assets. For this service, they make their money by charging small fees. They are run on the company's private servers, which arguably leaves them vulnerable to attacks due to the centralisation of control.
Some will offer some insurance, which is only beneficial to the users if the company is at fault but not if the user is careless with their login details. Such platforms will require one to register and identify themselves before using them since most are highly regulated. By being centralised, they go against the Bitcoin philosophy.
- Decentralised Exchanges
Decentralised exchanges operate peer to peer without intermediaries. They are run by several computer servers that work as nodes spread across the globe, which means even if one is switched off, it will not affect the network since many others are still running. This can't be said for centralised platforms.
Due to decentralisation, they are exempt from regulatory rules since there isn't a specific entity governing them. This means the users don't have to declare their identification in order to freely use the platform.
They use algorithms to match buyers and sellers depending on the amount of Bitcoin users would like to purchase. This eliminates the need to charge exorbitant fees to support operations and staff. The only problem is they are quite advanced for people lacking prior crypto knowledge. They also lack the kind of liquidity seen on centralised platforms, which makes it easy to buy and sell crypto quickly.
- Local Exchanges
Local exchanges are platforms that link people within the same locality, enabling them to buy and sell Bitcoin with ease. A good example is LocalBitcoins, which matches buyers and sellers depending on their location. The advantage of this is support for local currencies and payment methods that are convenient for these people. On such a platform, trades are made peer to peer where users communicate through messages on the platform and agree on various terms before conducting transactions.
- Fiat Vs Pure Exchanges
Fiat exchanges are platforms that allow users to buy Bitcoin using fiat currencies. This can be through bank transfers, credit/debit cards, and so on. Such exchanges are great for beginners since they act as intermediaries between the outside world and the crypto world. On the other hand, there are pure exchanges that support direct swaps of crypto coins. To access and use such platforms, you have to own some crypto, which you have to send to the platform and then exchange it for the kind of coin you need.
Key Things to Consider When Choosing the Best Bitcoin Exchange
Since there are many Bitcoin exchanges in existence today, one has to be very discerning when selecting the right platform. This decision should be based on several factors, such as the fees charged on each platform. If you want to trade a lot, you have to watch out for the fees charged since they accumulate and can take a massive chunk of your profits.
Another crucial factor is the kind of payment methods supported by the platform. Is it possible to fund your account using various payment modes like bank transfers, credit/debit cards, e-payments, crypto, and so forth? This will ensure you are not limited when it comes to funding your account and making withdrawals. The exchange's design is also a factor you have to pay attention to since if you are starting your crypto journey, you need an easy to use platform where every aspect is straight forward.
On the other hand, if you are an experienced trader, you need an advanced platform that allows you to engage in more advanced trading. The platform should be easy to use with fast loading times and orders executed fast. Most importantly, you ought to check the platform's security, including how user funds are stored and other measures the exchange takes to protect user assets. Ideally, they should keep most user funds in cold wallets for centralised platforms and even have an insurance cover if they get breached.
The other factor you can check for is the account verification process. If you wish to be anonymous with your transactions, you have to avoid platforms that ask for too much personal information.
Pros and Cons of Using Bitcoin Exchanges
You need to understand different types of Bitcoin exchanges will offer different capabilities. Therefore, depending on your needs, it helps to invest some time in research to see the platform that best suits those needs.
Centralised platforms are great if you are starting out and will help you buy BTC using fiat easily. If you would like better control over your coins, you have to send them to a private wallet such as a hardware wallet or opt for a decentralised platform.
But, decentralised exchanges have their own drawbacks like low trading volume and lack of liquidity. Additionally, if you already own some crypto, you can opt for crypto to crypto platforms where you can exchange your coins for whatever asset you like. And if you want to make more through trading, you can opt for a broker who will allow you to trade with leverage, thereby multiplying your returns.
Frequently Asked Questions
There are a few ways to secure your account. First of all, when signing up, ensure you set a strong password. Also, activate the two-factor authentication (2FA), which adds an extra layer of security.
When dealing with centralised platforms, it is advisable to keep just a small amount on the exchange and the rest in cold storage where you have access to your private keys.
You have to submit a picture of a government-issued ID or driver's license. Also, a utility bill that shows your address.
It helps the best Bitcoin exchanges avoid fraudulent acts on their platforms.
The answer to this question depends on what you are looking for in an exchange. It is very important to do a little research to check out availability in your locations, as well as the unique functionalities and features.
When selecting the best trading platform, you have to do your due diligence by checking for the kind of fees charged, ease of use, cryptocurrencies on offers, customer support, and the kind of security offered.
No. Most will offer access to other popular coins like ETH, LTC, XRP, and many more.
Yes. This is possible. You can withdraw the coins to your hardware wallet or even transfer them to another platform depending on how you need to use them.