s a start: this blog is targeting people who are new or beginners to the cryptocurrency world and want to hear about experiences how to get into various coins with a HODL strategy. It is not intended for experienced cryptocurrency traders who are buying and selling on limits and margins. In this blog I want to share my experiences with cryptocurrency exchanges. I have had experience with a good handful of them by now. I think it is important to share these experiences because there can be a lot of hard lessons learned if you just jump into it. Worst case scenario, you can lose your money deposited on an exchange. There are numerous examples of that already. Exchanges getting hacked. But it is also important to be aware of the cost related to trade on the various exchanges.
My first experience with cryptocurrency exchanges was with Coinbase from The States (www.coinbase.com). In spite of Coinbase being a centralized exchange, I have been pretty happy with them. Never really had any problems with them. I know a lot of people who have had bad experiences with Coinbase, mostly related to the customer service not responding to emails fast enough. Of course, this can be pretty frustrating if you cannot access your money. This is a general problem for most exchanges though because of the interest in cryptocurrency which has exploded in 2017. They simply don’t have resources enough to respond in a reasonable amount of time.
My biggest worry in the beginning was if they could be trusted with my money. Because the market is not regulated you basically just have to trust them based on their reputation. You don’t know exactly what is going on behind the curtains. How to they handle your money? What is the IT security level? Etc.
Several exchanges have been hacked by now and millions of customers’ money have vanished into thin air. And there is no guarantee that you can reclaim your money. Exchanges might not take any responsibility at all. For instance, Bithumb (www.Bithumb.com) was recently hacked.
Look for their reputation, indications of IT security level and compliance to law and regulations. And don’t compromise for lower fees and exchange rates. Losing your money due to criminal exchange owners or hacked exchanges is more depressing than high fees.– Dan R Aigens
There has also been rumors that certain exchanges would invest the money deposited in the exchange, in high risk stocks. Needless to say, if their investments failed, their customers will unknowingly lose their deposited money.
I feel safe at Coinbase. At least comparatively. They have a good reputation, they have a good record of accomplishment, it is obvious that they strictly want to comply with regulations and my personal experience with them is overall good. Except for one thing: fees are unbearably high. But this is also a general problem with centralized exchanged. To give an example, at the moment if you want to buy Litecoin instantly on Coinbase you have to pay approx. 3 euros per Litecoin. Its around 5 % fees. Then you must include fees related to transferring money from your bank to Coinbase and back again. It turns out to be a lot of money in fees and loss in exchange rates. Moving from fiat money to cryptocurrency and back is hilariously expensive. Trading cryptocurrency is somewhat less expensive, but you still must watch out. At the moment, I mostly use Coinbase as a gate from fiat money to cryptocurrencies. I don’t trade on Coinbase that often. Mostly because they only have listed Bitcoin, Ethereum and Litecoin. More will come soon though. That will be interesting.
I have also tried out centralized exchanges like Bitstamp (www.Bitstamp.com) and Kraken (www.Kraken.com) but didn’t find any advantages by using them. On the other hand, I don’t find them flexible enough regarding deposits and withdrawal.
To wrap up the first part of the blog I have two main messages:1
I’m not happy with the high fees taken for buying cryptocurrency with fiat money, but because I have no other choice, I accept it if I feel my money is in a secured deposit, and I keep looking out for cheaper options. For long time HODL, I recommend the cryptocurrencies are withdrawn from the exchange and deposited on a wallet, where you control the private keys. I will write more about wallets in another blog.2
Speaking of cheaper options, its important that you don’t trust any exchange to begin with. Do your research before you deposit money in an exchange. Look for their reputation, indications of IT security level and compliance to law and regulations. And don’t compromise for lower fees and exchange rates. Losing your money due to criminal exchange owners or hacked exchanges is more depressing than high fees.
2017 is a big year for not only Bitcoin, but also for altcoins. And the good news is that 2018 most likely will be a lot better than 2017. Therefore, I have really been investigating the market to find exchanges where I could buy altcoins in a safe manner. And exchanges where many interesting altcoins would be available. I don’t want to waste time, effort and money on trying out too many obscure centralized exchanges where I would take a lot of risk. I want to keep it simple. Therefore, I have so far managed to do conversions to altcoins with 2 decentralized exchanges, Changelly (www.changelly.com) and Shapeshift(www.shapeshift.io).
I think if you are a true Bitcoiner, one of the things that you value great is the advantage and power of decentralization. For me greatest benefit of decentralization is to remove centralized power and control and that is what Bitcoin is all about. Therefore, my natural instinct guides me towards decentralized exchanges. Decentralized exchanges such as Changelly and Shapeshift don’t hold on to your money for longer than it takes to complete a transaction. And on Shapeshift you don’t even have to create an account. On Changelly you can create a user anonymously.
These decentralized exchanges still work as a middleman, meaning that they also take the role as an escrow service provider, which is the only left over from the centralized world if you ask me.
Both Changelly and Shapeshift are both expensive to use. They are almost on the same range. I have heard from several sources that Changelly is offering better exchange rates than Shapeshift, but I have not experienced that myself, at least not any significant difference. On the other hand, Changelly takes 0.5 % in conversion fee, which is 0 at Shapeshift. But exchange rates are outrageous at both exchanges. Example: If you want to convert 1 Bitcoin to Ethereum, you will take an immediate loss of 60 – 70 USD on the exchange rate. Now, smart traders will of course never convert Bitcoin to Ethereum on these exchanges, as there are many other much cheaper options.
But if you are into other altcoins it can be hard to find a good alternative, which gives you the same security and “easy to operate” features. This is why I use both Changelly and Shapeshift. I use them both because they haven’t listed all the same coins. Some are only found on Shapeshift and vice versa.
Looking into the future my search for decentralized exchanges continues. Next step in this direction is to find a decentralized exchanged which offers atomic swap. Atomic swap is a functionality where you can exchange coins directly on two different blockchains in a secure manner with a trustless party. Without going into technical details, it means that the middleman layer, the escrow service, will not be needed anymore. The middleman will be replaced with a floating mathematical algorithm that has the ability to reach out and switch both coins simultaneously. I hope this will result in bringing the fees down and contribute to better exchange rates offered at these exchanges. An example of a decentralized exchange with atomic swap is Altcoin.io. (www.altcoin.io) They have announced that their services will be ready in the beginning of 2018.
Not to doubt the fact that centralized exchanges are going to get serious competition already next year from decentralized exchanges with atomic swap. These exchanges will be almost unhackable, due to the fact that there are no deposits to steal and private keys are not stored anywhere. Now, what is left to look at is your own level of IT security. How do you handle your private keys and passphrases? I will talk more about that in another blog.
As a final note I have to mention that it requires certain technical upgrades for a coin to be able to do atomic swap, such as Lightning network, so many coins will not be listed on atomic swap exchanges for that reason alone. Good luck out there and be safe with your money.