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Are cryptocurrency exchanges safe? How to choose an exchange you can trust

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By cyphershieldtechPublished about a year ago 11 min read
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In this article, you will learn the most important factors to consider before creating an account on a cryptocurrency exchange.

Security is the top priority when choosing an exchange to trade your crypto assets.

In addition to security, be sure to consider other important aspects such as the products and services they offer, commissions, profitability, reputation, user experience, and more.

The search for an exchange you can trust

This year, Bitcoin went mainstream, with individuals, institutions, and even countries getting involved. The bitcoin price climbed from $30,000 to an all-time high of around $65,000. As a consequence, there is an incredible demand for high-quality and reliable cryptocurrency exchanges where you can buy and sell Bitcoin and other altcoins. Among the aspects to consider when choosing a suitable exchange, safety and security are perhaps the most important for cryptocurrency traders.

The need for security on cryptocurrency exchanges increases with time. As more people participate in the crypto ecosystem and learn the basics about it, protecting users is the most important objective of the main platforms available in the market. Compared to a few years ago, major cryptocurrency exchanges have implemented increasingly sophisticated security systems, such as rigorous identity verification and authentication measures, AI-based analytics, and various collaborations with top-tier cybersecurity companies. Although security has improved significantly over the years, not all exchanges are the same.

In addition to security, cryptocurrency users are looking for the right mix of available products and services, a convenient user experience, and an abundance of opportunities for profit and profitability, among other factors.

How can you find an exchange you can trust when there are hundreds vying for your attention? What are the criteria that define a trustworthy exchange? Although there are hundreds of cryptocurrency exchanges, only a few meet the criteria that we describe below.

1. Top priority, safety

When we have to select a cryptocurrency exchange to trust, security should always be the main factor to consider. From the moment you deposit your fiat currency in the exchange wallet to the moment you start your trading activity, every step of the process must be secure.

At first glance, it may not be easy to detect the level of security of a cryptocurrency platform, but there are some aspects that you can take into account. Whether your cryptocurrencies are protected will directly depend on the security of the method you use to store them. Therefore, it is vital to choose a partner you can trust, one that protects your personal information and funds with the latest security standards, a professional security team, and ideally, the icing on the cake: a recovery fund.

1.1 Safety standards

Hacking a specific cryptocurrency is difficult and requires the daunting task of taking over most of the computers running the token's blockchain network. For this reason, it is much easier for hackers to exploit weak points in exchanges in an attempt to steal user funds or information.

When looking at the security standards of a cryptocurrency exchange, you should consider both Internet security standards and encryption standards. For an exchange to pass Internet security standards, it must have sufficient protection regarding access to the Internet, including accounts, funds, point of contact, and more. The exchange must also have sufficient cryptographic protection, including custody of users' cryptocurrency wallets, keys, and more.

The best exchanges in the world have the latest security standards for both the Internet and encryption. Employees must receive ongoing training to prevent and counter breach or trespass incidents. They undergo regular penetration tests and in turn educate their users on cyber hygiene, be it safe use of the internet or the proper ways to access tokens, blockchains and cryptocurrency projects. Read about the general safety principles and cryptocurrency security to better understand cryptographic security.

1.2 Security of funds

The cryptocurrency markets are full of bad actors and hackers looking for an opportunity to exploit exchanges and steal your funds. Exchanges are a popular target for hackers and their underworld due to the large volume of money stored on them. Although they are rarely successful, it is good to use an exchange with a back-end recovery plan or insurance plan.

1.3 Safety equipment

The most important team in any cryptocurrency exchange is security. For this reason, many exchanges take great care in protecting the identity of their cybersecurity specialists, in order to lessen the possibility of hackers contacting them to explore potential vulnerabilities. Ideally, your best bet is to sign up with an exchange with an active security team that publish research reports and analysis newspapers and to collaborate with other projects to improve the security of the cryptocurrency industry as a whole.

The best security teams proactively communicate with the highest level experts and companies through initiatives and alliances, inform the public about the security issues resolved and encourage the crypto community to discover and combat the vulnerabilities of the platform in exchange for significant rewards.

1.4 User Protection Security Program

When it comes to incentives and rewards, a proactive security team should come up with contingency plans to address all potential pain points regarding the use of a crypto platform, from education to insurance. This way, no matter what happens, users' funds will be protected and cared for.

Popular and viable protection programs include regular releases of security updates, as well as funding and insurance programs such as the SAFUan the Pioneer BNB burn program, which cover potential loss of funds from users who have suffered account breaches or human error while transmitting cryptocurrency.

1.5 Transparency

For a cryptocurrency exchange, the threats are not only external, but also internal. The ideal exchange is transparent to its users from every point of view and offers: clear and easy to understand terms and conditions, a commission program available to everyone, transparent trading and a comprehensive roadmap. The exchange must be easy to operate so that users and interested parties can respect the operations of the exchange or review how funds are stored and protected. Transparency is extremely important for all exchanges, but doubly important for those that also issue stablecoins. You can read more about the transparency in stablecoins at Binance Academy.

1.6 Protection of user information and improvement of KYC

The first process you will need to undergo is registration, during which you will go through the verification process of KYC, know your customer. At the very least, a trusted exchange should be able to protect the information you provide, but the best exchanges take the KYC verification process very seriously and leverage it to proactively protect users and the cryptocurrency industry as a whole.

2. Products and services

The ideal exchange should offer a wide variety of trading pairs, that are constantly audited and reviewed, as well as easy access to the main payment methods (both inbound and outbound). Although it is important to have many options for trading pairs, it is even more important to have strict standards for the trading pairs, products and services that are incorporated. An exchange with fewer trading pairs that are high volume and secure will definitely be better than an exchange that has more trading pairs that are below average performers.

2.1 Deposit and withdrawal methods

Before you start your trading activity and the use of different products, you should get some cryptocurrencies. Some exchanges may only offer one or two payment methods, but it is always better to choose an exchange that has multiple options likecredit or debit card payments, wire transfer, P2Por third-party payment providers. Each method has its pros and cons; consider individual methods according to your circumstances and region.

The ideal exchange provides a variety of deposit and withdrawal options such as:

Fiat currency deposits and withdrawals

Deposits and withdrawals of cryptocurrencies using stablecoins (USDT, BUSD, etc.) and conventional cryptocurrency tokens (BTC, ETH and other popular tokens)

Deposits and withdrawals that are made through the main payment channels and services, each with a good reputation, high performance, etc.

It is also important that each payment gateway is secure. Pay attention to how security is implemented on each of those channels.

Likewise, the available payment methods must provide users with sufficient flexibility and practicality. Ideally, they should operate 24/7 on both mobile and desktop, and if possible have mode to provide even easier access.

2.2 Cryptocurrencies and trading pairs

Many exchanges provide a variety of cryptocurrencies to choose from. Undoubtedly, buying Bitcoin is the first option for many new cryptocurrency users, but later on, you may want to buy other popular tokens, such as ethereum,BNB,BUSDor more. In that case, you will need an exchange that provides you with diverse options, both cryptocurrencies and trading pairs. A wide variety of trading pairs will allow you to choose from a large selection of trading opportunities.

Aside from variety, users should also look for quality in the tokens published on the platform. Exchanges must maintain a high standard when it comes to the tokens they list and ensure that whatever token the user chooses, they have a good reputation and an active team.

The ideal exchange also lists new cryptocurrencies that are becoming popular quickly, showing that it listens to its users. Of course, the exchange has to do it without sacrificing standards.

2.3 Products

What do you expect when you buy Bitcoins or other cryptocurrencies? Is your plan to buy and make HODLOr do you want more for your money? Global exchanges often surround themselves with an ecosystem of supplementary products and services, such as crypto debit cards, asset custody and protection, trading services, and other financial services designed to enhance your cryptocurrency experience and provide additional potential profit. .

Furthermore, the ideal exchange should have a top-notch trading infrastructure, as well as a set of reliable investment and earning products. To the extent possible, the exchange should provide adequate educational support, including FAQs, blogs, and other materials to help users in their cryptocurrency experience.

Whatever your plan, make sure you choose an exchange that offers the solutions you need. What differentiates a great exchange from a lesser one is the ecosystem it provides. If the exchange is only focused on being purely an exchange, rather than providing a holistic cryptocurrency experience, then you may be better off choosing another one that offers a more comprehensive ecosystem.

2.4 System performance

You need an exchange that is reliable, resistant to volatile market movements, supports increased user activity, and provides liquid markets for faster trade execution.

Not all exchanges make this possible, but try to learn the performance of their matching engine, which can tell you how many trades it executes per second. Then, visit the exchange's social media or blog to see the maintenance frequency and past outages.

3. Commissions and profitability

Every user has a different experience when it comes to using the exchange, but the goal is generally the same: invest and profit. To maximize your investment potential, it is important to look for an exchange with a fair and transparent fee schedule, profitable products, and a generous return scheme.

3.1 Charging commissions and earning commissions for referrals

Commissions are the main source of profit for cryptocurrency exchanges. Every time you make a trade or transaction, you may be required to pay a fee depending on the exchange's fee schedule. A generally acceptable commission for maker or taker(or buy or sell order) will be between 0.1% and 0.2%.

Exchanges generally do not charge fees on deposits and only charge a small fee on withdrawals, but this can vary between different platforms. Some return a portion of the commissions to the user in the form of referral commissions for referring friends to sign up. Consider your trading volume and calculate your average commissions before signing up. If you trade high volumes, consider VIP programs that provide reduced commissions as well as unique benefits on the platform, and other individual and referral trading opportunities that will help you increase your funds as the exchange expands its network.

3.2 Profitability

As the cryptocurrency market grows and services develop, investing in cryptocurrency is not limited to trading and holding. Different services allow you to leverage your holdings and increase profits with a variety of products that provide different risk-reward ratios. The exchange you choose should offer you profitable products with enticing earnings potential, such as savings, staking,loans, futures and margin trading. The most developed global exchanges also offer a new form of financial services, called DeFi, or decentralized finance. Competitions and giveaways are extra.

Here are some signs that show when an exchange is good from a profit standpoint:

The APYs, or Annual Percentage Yield, of its cryptocurrency financial products are higher than the rates of comparable products on other platforms.

The exchange delivered on most, if not all, of the promises set out in its roadmap.

The platform goes the extra mile to provide earnings on tokens that are held or staked in the exchange's wallets, with no fees.

4. Reputation and track record

Once you have verified that the chosen exchange is safe, meets your needs and offers fair conditions, it is time to review the brand and the system. Signing up to an exchange and depositing your hard-earned money requires trust. Before sending your money to an exchange, always check its reputation, past incidents or scandals, legal or regulatory issues, and system performance.

4.1 Reputation

Reputation is one of the most decisive factors for a successful cryptocurrency exchange. Exchanges know this well: a well-known company will do everything in its power to protect its users and its name. One of the easiest ways to evaluate an exchange is to see what the community and social media followers are saying. You can also search for the exchange name in Google News Feed to see media reports. Who is the CEO and what kind of team is behind the exchange? The team should always demonstrate openness and a willingness to listen to community feedback.

4.2 Leadership

Actions say more than words. Check Google and social media such as Twitter, Facebook or Reddit to find information on recent statements made by the leaders of the exchange and compare them with what is happening on the exchange. Make good use of the Bitcoin note: "Don't trust, verify", and always check the accuracy of information with multiple sources. Remember: always be alert to FUDwho want to plant fear, uncertainty and doubt.

4.3 Social responsibility

One of the hallmarks of a socially responsible exchange is that it focuses on educating everyone about cryptocurrency, from the basics of buying and trading tokens to in-depth analysis and summaries of cryptocurrency fundamentals. Some exchanges even go further and create a platform for unbiased and up-to-date education on the world of cryptocurrencies. The ideal exchange should give you a lot educational materialwith which you can learn more about security, trading, finance, cryptocurrencies and everything related.

5. User experience and satisfaction

The exchange you choose should be reliable, easy to use, and intuitive. Can you handle high volume trading during volatile markets? Does the interface provide a smooth experience? No one wants to waste time looking for features and buttons in menus.

5.1 User experience

5.2 Customer service and satisfaction

Conclusion

It is not an easy task to find an exchange that meets all the criteria and only a few can check all the boxes. However, it is worth the time to do your own research before trusting him with your money. With the explosive growth of the cryptocurrency sector, exchanges are becoming popular. The criteria for evaluating them become more complex and technical, which is surely more challenging than before.

We help you launch your Decentralized Exchange without the headache of bugs and code issues in your smart contracts. Certify your DEX with a Cyphershield Audit.

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