A bitcoin exchange is an online marketplace where traders buy and sell bitcoins using fiat currencies (US Dollar, Euro, Yen, etc.) or altcoins (Litecoin, Ethereum, Monero, etc.). It serves as a platform and an intermediary between cryptocurrency buyers and sellers.
The ticker for Bitcoin in these exchanges is either XBT or BTC.
You will have to do three things when you buy or sell bitcoins in a bitcoin exchange.
You can use the criteria below for determining whether a bitcoin exchange is good enough for your needs.
Competent security. All bitcoin exchanges work keep hacking at bay every day. As hackers improve every day, exchanges must improve at the same rate if not better. Choose an exchange that exerts real effort in securing your assets like storing customers’ coins in cold wallets.
Emphasis on privacy. Buying bitcoins is supposed to be a 100% private activity when you do it with cash or cash deposit. However, not all exchanges support this. Choose an exchange that accepts payment through channels that offer 100% privacy.
Fair exchange rates. There are no official exchange rates for Bitcoin in the currency markets. Thus, prices are based on the average rates across all exchanges. Look for reliable sites that offer industry rate averages for Bitcoin.
Liquid transactions. You can get bitcoins fast through Bitcoin ATMs. Another way is to find exchanges or brokers that offer instant buy through bank transfer, debit card, or credit card.
Limits on purchase. If you’re planning to buy only a few bitcoins, brokers with low purchase limits won’t be a problem. If you’re planning to buy a lot of them, you will have to look for reliable brokers with higher limits or no limits on purchase at all.
Reasonable, transparent fees. Exchange fees should reasonable. They can change as time passes and vary from one exchange to another. Some exchanges charge extra fees other than transaction fees. Some exchanges give fee deductions to reward your loyalty and transaction frequency.
In the end, it’s very important that you know that fees exist and won’t blindside you when you least expect it.
Like in a conventional stock exchange, bitcoin exchanges match buyers and sellers. Traders opt to buy and sell Bitcoin by entering a market order or a limit order.
Market orders authorize the trader to trade his coins at the best currently available price in the marketplace.
Limit orders, on the other hand, authorizes the trader to trade his coins at a price lower than the current ask price when buying or above the current bid price when selling.
You will need a Bitcoin wallet to receive, store, or spend your bitcoins.
Bitcoin wallets can be websites, apps, devices, or software programs. They contain private keys that let you access your bitcoins. Bitcoin exchanges offer Bitcoin wallets when you sign up. Some people choose to hold their physical Bitcoin wallets or even physical bitcoins to store their crypto money.
There are two main types of Bitcoin wallets: hardware wallets and hot wallets.
These are physical electronic devices that resemble USB sticks or thumb drives. Their sole purpose is to manage your bitcoins. Quite a number of people prefer these because they perform like physical wallets – just connect them to a computer, phone, or tablet to spend Bitcoins inside.
The only way to lose bitcoins through a hardware wallet is when someone outright steals your bitcoins. However, you can choose to protect it using a PIN code. You can also make a secret backup code to maintain access to your bitcoins even when you lose your hardware wallet.
Hardware wallets are good but they’re not free. You need to pay around $50 to $100 for a good Bitcoin wallet. Cheaper ones can be bought for $20 but the risk yours to take.
Hot wallets are apps or programs found on smartphone, tablets, and computers. They also generate your private Bitcoin keys.
They’re normally viewed as the easiest way to store and spend bitcoins, but they offer less tight security. Small amounts of Bitcoin can be stored on hot wallets while main Bitcoin funds area ideally stored in cold wallets.
The three main payment methods for buying Bitcoin are the following:
This method is the most popular because most people who know their way around money have a bank account with or without a credit card or a debit card.
Debit and credit cards can offer instant access to bitcoins but for relatively higher fees and less anonymity because they will require your ID for validation.
For larger transactions, bank transfers are preferred. They charge lower fees but can take up to 5 business days to complete transactions. They also provide less anonymity like the cards.
If you need anonymity, cash is your method of choice. However, they sell for up to 10 to 15% higher than bank card and transfer. Cash transactions are also prone to scams and robberies.
Try looking for nearby Bitcoin ATM in your location. Major cities typically have them. Some even have multiple Bitcoin ATMs. Unfortunately, they offer the same markup rates as cash transactions.
Bitcoin exchanges have similarities and differences with other types of exchanges. However, security and anonymity are emphasized as strong criteria when it comes to choosing the right exchanger for you.
You are solely responsible for your bitcoins and other cryptocurrencies so make sure you do your homework before dealing with any Bitcoin exchange.