4 Best Bitcoin Exchanges in 2017

It’s all about reputation, currency support and transaction fees

 

 

 

A Bitcoin exchange is a digital marketplace for users to buy and sell Bitcoins using different currencies. The Bitcoin can be exchanged for either fiat money (legal tender) or other alternative cryptocurrencies such as Ethereum. The exchange serves as the middleman for traders of the cryptocurrency.


Being able to purchase Bitcoin is the initial step to trading in it. Just like trading a stock, Bitcoin exchanges charge transaction fees, which range from 0 to 1%. In order to trade Bitcoin on an exchange, the user needs to have an account, and go through a series of steps to be verified. 


Remember that Bitcoin and alternative cryptocurrencies are a completely digital currency, and there are no physical Bitcoins.


However, before plunging in with both feet, users should be aware of what to look for in choosing a Bitcoin exchange for their cryptocurrency transactions. This is analogous to the issues and potential pitfalls in making a choice of where to do your banking, or open an online brokerage account. Furthermore, bear in mind that unlike banks and stock trading, Bitcoin trading is largely unregulated by most countries, although this is changing as its popularity increases.


A good place to start is to look at the virtual coins which are supported by an exchange. With over 4,000 cryptocurrencies, and additional ones being added all the time, it is key to figure out which currencies you want to trade in, and then match the exchange that deals in those. For example, Ethereum mining has recently become more popular, but not all Bitcoin exchanges support this alternative cryptocurrency.

Language barriers

 

Next look at the country that is hosting the Bitcoin exchange. Some are in less regulated countries, and there may be additional problems if something goes awry. This can include time differences, international long distance costs, and language barriers. In general, it’s preferable to find an exchange that speaks your language.


Additionally, pay close attention to the fees levied. While all these exchanges charge transaction fees – after all, they are businesses looking to make a profit – as the user, it is obviously best to find one with the lowest costs in order to maximize your own profits.


Also look for a secure trading platform, and a Bitcoin exchange which has robust security measures. After all, you wouldn’t use a bank that didn’t have a vault, and stored its money on the counter…


Desirable security features include two-factor authentication, SMS or email alerts, encrypted emails, and wallet monitoring. A smartphone app can also be very useful in terms of accessing and monitoring funds – but equally, poorly implemented software can represent a security risk.


Finally, look for an exchange which is doing a good volume of trading – in other words, one with a high number of trading pairs, and high liquidity.
Now that we know the features to look for in the best Bitcoin exchanges, let’s move on to pick out our particular favorites.

 

1. Coinbase

 

 

 

This is a US-based exchange which was founded in 2012, and it supports over 32 countries. Coinbase exchanges Bitcoin and the alternative cryptocurrencies of Ethereum and Litecoin, and it’s the largest of the exchanges, claiming $20 billion (£15 billion) in currency exchanged. In 2014 Coinbase created GDAX, the Global Digital Asset Exchange which was developed for professionals with high volumes of trading.


The firm offers a mobile wallet, offline storage, and insurance protection for currency stored on its servers. Coinbase supports several fiat currencies: British Pounds, US Dollars, Euros, Canadian Dollars, Australian Dollars and Singapore Dollars.


The Coinbase exchange has a 1% flat fee for each purchase, while cryptocurrency deposits and withdrawals are done without any fees. A streamlined user interface which is ideal for novice traders – and fast trades – makes Coinbase a popular exchange with traders.

2. Gemini Exchange

 

 

 

Gemini Exchange is another US-based outfit founded by the Winklevoss twins – the pair who sued Mark Zuckerberg over social networking, and were awarded $65 million (£48 million), which they put to use as venture capitalists. This exchange is based in New York, and is available in 45 US states, as well as the UK, Singapore, South Korea and Hong Kong.


Gemini’s only supported fiat currency is US dollars, and it only trades Bitcoin and Ethereum. Gemini does not charge deposit or withdrawal fees, and levies a low flat rate of 0.25% for trades, to both the buyer and the seller.


Another advantage of Gemini is that it’s a New York state limited liability trust company, and is regulated by New York’s Department of Financial Services. Close proximity to the Wall Street financial markets allows the company to easily provide a bridge from more traditional investments to newer cryptocurrency markets, for both individual and institutional investors.


Gemini is also notable in that it accepts ACH transfers for fast access to money for trades. A potential downside is that the interface is not particularly novice-friendly.

3. Changelly

 

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Changelly is a cryptocurrency exchange with support for many more virtual currencies than most, including Monero, Dash, Bytecoin, and DigitalNote among others. If you are mining a less popular currency, chances are that Changelly can exchange it for you.


This exchange comes from the popular mining platform MinerGate which provides a merged mining pool across Windows, Mac, Linux and Android operating systems. While Changelly focuses on exchanges between different cryptocurrencies, users can also purchase cryptocurrency with US Dollars or Euros.


Note that this exchange has a shorter track record, as it only entered the market in 2016. Exchange fees are 0.5% on transactions.

4. Cryptopia

 

 

 

Cryptopia was founded in 2014, aiming to be a comprehensive exchange that focuses on the user experience, with integration of additional services including a marketplace and wallet. It is based in Christchurch, New Zealand. Cryptopia is notable in that the first level of verification happens very quickly, and only requires an email address for initial verification.


While Cryptopia does not support fiat money trading, it does support a ridiculously large number of cryptocurrencies: over 400 to date, with more being added all the time. The trading fee is also a low 0.20% per transaction, which compares favorably with many competitors. The website is quite large and sprawling, meaning that new users might find their first experiences with the site a little daunting.

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Understanding How Bitcoin and cryptocurrencies Work

Introduction and a Lesson in Scarcity

While once a curiosity of the internet, Bitcoin and other cryptocurrencies are considered by some to be the money of the future. However, over the last several years, Bitcoin has certainly had its ups and downs – literally.

• Bitcoin explained: what is Bitcoin?

Cryptocurrency is an attempt to replace money transactions with a digital medium of exchange using peer-to-peer networking. The first decentralized cryptocurrency, and still the most successful, was Bitcoin, which was created in 2009 by the mysterious developer Satoshi Nakamoto, who subsequently left the project in late 2010.

 Virtual money, real impact

 

The idea is that you use cryptography to control the creation and transfer of money, rather than relying on central authorities.
Since the success of Bitcoin, there have been over 3,000 other virtual currencies introduced with varying degrees of success and popularity such as Ethereum, Litecoin, Monero and Dash. There have even been crowdfunded cryptocurrencies such as Lisk.


Many other cryptocurrencies have just died because of lack of interest, and the simple fact that no one used them. Non-Bitcoin cryptocurrencies are collectively known as altcoins and they are more or less based on the same idea of a decentralized digital medium for exchange.


Their success depends on how much ‘cash’ (the total value of transactions) they have sloshing about the peer-to-peer network (i.e. the virtual economy). Since Bitcoin is open source, anyone can develop their own cryptocurrency using the same technology.

A short lesson in scarcity

 

Bitcoins derive their value partly through their scarcity, which is defined by a cryptographic lottery. You can buy Bitcoins on online cryptocurrency exchanges or you can earn them through a process known as ‘mining’.


Bitcoin mining programs compute an encryption function called a hash on a set of random numbers. Coins are awarded to whichever miner happens to compute a number below a certain threshold.
Originally, Bitcoin mining was handled by standard PCs with powerful graphics cards, but as the hash difficulty has increased, the preferred method to mine Bitcoins is to employ a Bitcoin ASIC, a chip that has been designed specifically for this task. However, with the higher value of cryptocurrency – in particular Ethereum – and recent advances in GPU processing power, miners have once again been turning to graphics cards for mining.


This lottery favors those with the biggest and fastest machines, and currently there are about 17 million Bitcoins in circulation. Note that the total number of Bitcoins in (virtual) circulation will never exceed 21 million because of the way the system was designed.


As the Bitcoin network gets bigger, the hash gets more complex, and miners get fewer Bitcoins for their trouble, hence they always need better hardware and higher Bitcoin prices to make it worthwhile.


As a currency, Bitcoin is still a niche market. However, multiple established retailers accept it as payment including Overstock, Expedia, Newegg and the Dish Network.


Since Bitcoins can be spent on the internet without the use of a bank account, they offer a convenient system for anonymous purchases, which also makes it possible to launder money and buy illegal products. Since there is no money stored anywhere, accounts can't be frozen by police or PayPal administrators.

Business Suitability and Bitcoin's Future

Ideal for small transactions?

Bitcoin was once regarded as an ideal system for small electronic payments – so-called micropayments – as it is difficult to transmit small amounts of currency efficiently with existing systems. Credit card fees, also known as swipe fees, can often exceed the value of the purchase, making this costly for retailers. However, Bitcoins increased transaction fees have proved to be a barrier preventing it making inroads into the world of micropayments.


Another problem with Bitcoin is the volatility of its value which exceeds the volatility of other currencies and gold, resulting in huge fluctuations in comparison to the US dollar. In 2013, the value of Bitcoin went from $10 to over $1,000! Because its supply is ultimately limited, prices will need to vary to accommodate shifts in demand, not the other way round. Unlike gold, Bitcoin has no intrinsic value from alternative uses that could anchor its price.

Not fit for business?

As a currency, Bitcoin is not stable enough for most businesses. The value of a Bitcoin fluctuates dramatically and because there are no controls there is nothing to stop money vanishing if the price tanks.



Bitcoin payment processors offer a way of getting around this problem, as they convert the transaction to hard currency almost instantaneously. Many companies want regulation to provide them with some security and protect them from potential big losses on the cryptocurrency.

Bitcoin's future

 

There are some signs that governments are starting to look at regulations and this is clearly proving difficult.
All these factors are significant barriers which are diminishing Bitcoin’s chances of becoming a more widespread and popular currency. Bitcoin's market capitalization currently stands at about $74.5 billion (around £55 billion).


Previously, Goldman Sachs has said that it was more plausible that Bitcoin could have a significant impact in terms of its innovation on payments technology, "by forcing existing players to adapt to it or co-opt it."
However, the Goldman Sachs report also said that Bitcoin's ‘biggest hurdle’ will be maintaining its cost advantage in the face of greater regulation, higher operating costs, and competition from entrenched players.


Fitch Ratings came to a similar conclusion and found that Bitcoin stands to lose much of its appeal if Bitcoin companies are forced to deal with the added cost of regulation, rendering the near friction-less Bitcoin network much less cost-effective than it is today.


In 2017, Bitcoin has been on the rise again, with prices per coin hitting $4,500 (£3,300). This has been fuelled by Chinese buying of the cryptocurrency.


It seems that the sheer success of Bitcoin which has seen it leap from being a shadowy entity to an all-star affair overnight has also hurt its long-term viability. It remains to be seen if Bitcoin can move beyond its niche to gain wider acceptance, and for the time being the cryptocurrency remains quite volatile, and a gamble to investors that has been likened to the tech bubble of the 1990s.

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