How to choose a crypto exchange
- Which crypto exchanges can be trusted?
- What are scam projects?
- Checklist to check before you start
The crypto market is considered quite risky for investment. In particular, the analysts traditionally warn that inexperienced traders are likely to lose their funds on it. Let's try to figure out how to protect yourself from scammers and which projects should be trusted.
Which crypto exchanges can be trusted?
The first question that an investor in the crypto market faces is the choice of a platform acquiring the assets. There is a huge number of crypto exchanges offering to invest in Bitcoin or Altcoins. It is worth mentioning the most popular sites first.
As of December 2022, the largest and most reliable crypto exchanges were Binance, Coinbase Exchange, Kraken and KuCoin. The author of this rating, the CoinMarketCap platform, ranks and evaluates exchanges based on several factors at once: web traffic, average liquidity, volume of transactions, as well as the legitimacy of the transactions, which is also a very significant factor for choosing the right platform. One of the major exchanges operating in strict accordance with the law is Currency.com.
A crypto exchange allows an investor to buy Cryptocurrency with fiat money, and then withdraw it in the same way, exchanging it back for fiat. At the same time, each site supports a different number of fiat currencies, and also offers a different set of coins. For example, the largest exchange Binance allows to exchange crypto for 46 fiat currencies, and Coinbase, which follows it, assumes withdrawal only in the US dollar, euro and British pound.
Accordingly, first of all, the investor needs to decide in what currency he will withdraw funds and what he will buy coins for. That is, if one has a card linked to the Swiss franc, he needs to look for an exchange that supports this particular fiat. Withdrawal methods may also vary. For example, Binance offers cryptocurrency withdrawals in euros - directly to a Visa card or through a p2p exchange to a Revolut account. In this case, the transaction is concluded between specific users, and the platform itself acts only as an intermediary.
At the same time, each major crypto exchange checks its users and asks to attach the official documents: a passport, a residence permit in a particular country and take a picture. Verification usually takes several hours, but may take several days.
An essential factor in choosing a particular site is its reliability and the size of the commission. First, you need to examine whether a particular crypto exchange has been hacked recently. Secondly, it is worth clarifying in advance the volume of the commissions for each operation. If the commissions are much lower than those of competitors, it is worth figuring out what is the reason for such generosity, and such a site should be approached with caution.
What are scam projects?
One of the main dangers in the crypto market is the possibility of contacting the scammers. If initially it was mainly supported by enthusiasts, then later this market became a real magnet for scammers. On average, according to the US Federal Trade Commission, one investor on average in the crypto market loses $2.6 thousand from the actions of scammers. And the most popular type of scam are false sites for investing in cryptocurrencies.
For example, scammers can release a site or even an app that imitates well-known crypto exchanges, collect funds from the investors, and then when one tries to withdraw the funds, it is more likely that the site will require to pay a huge commission. Therefore, it is necessary to enter crypto exchanges only on the official websites and install only the official applications.
The second most popular method of fraud is swindling money through dating sites or social networks. In this case, the scammer first shows interest in a potential victim, and then sends a link to transfer funds and advertises investments in some promising cryptocurrency. In this case, it is usually easy to identify a fraud by promised returns or fixed profits. The fact is that the crypto market is as volatile as possible, and there can be no guaranteed income here.
However, even if one has chosen a reliable crypto exchange and installed the official application, this does not mean maximum protection against the scammers. The most famous example is the OneCoin trading education project. To receive tokens, the user had to pay for an educational course, and the more expensive the course, the more coins could be received. The coins could then be exchanged for euros on OneCoin's own crypto exchange. However, as it turned out later, the company did not have any blockchain, and there was nothing behind the tokens. As a result, in 2017 the exchange stopped its work, and the total amount of damage amounted to $4 billion.
One should pay attention to which sites a particular coin is represented on. If its creators do not work with large exchanges, but close the exchange process exclusively for their resources, it is highly likely that one is facing a scam.
A variation of such a scam are the so-called shitcoins (from the English shit coin) - coins that have no value. The name of such coins should usually attract a novice investor with its extravagance, for example, ASS, Pussy or simply SCAM.
Often, the experienced investors find such a shitcoin and start “pumping” it, gradually spinning up an unknown token. As a result, the value of the coin can grow hundreds of times, after which investors sell it sharply, bringing down the rate to zero. Such a scheme is called Pump and Dump, which means literally “pump and drop”. One can protect himself from this type of fraud only by analysing a specific token and studying its history. Cryptocurrency should have its own club of enthusiasts, a community that supports it, and clear exchange rules.
Checklist to check before you start
In order not to fall for the hook of scammers, one should use a fairly simple instruction.
- Choose a crypto exchange for investment
It should be a reliable platform that has proven itself in the market. Check the rating of the exchange on the CoinMarketCap website and make sure that it works with the available fiat currency.
- Be sure to set up two-factor authentication
The largest exchanges offer several ways to authenticate users at once: through email, mobile phone or one-time passwords. The multi-factor authentication allows to strengthen protection against hacking. However, experienced traders advise against storing a large number of coins on a crypto exchange.
- Avoid unreliable cryptocurrencies
In the crypto market, investments in the most popular coins are the most reliable: Bitcoin, Ethereum, Litecoin, Cardano, etc. The list of Altcoins is constantly growing, new projects appear every month, but before investing in a little-known coin, carefully study the history of the project, read about its community, try to figure out how the project works and, most importantly, do not trust promises about guaranteed returns. Remember that the cryptocurrency market is very volatile, and there can be no promised profit here.
Which crypto exchanges can be trusted?
The CoinMarketCap platform ranks and evaluates exchanges based on several factors. An essential factor in choosing a particular site is its reliability and the size of the commission.
What are scam projects?
Scammers can release a site or even an app that imitates well-known crypto exchanges, collect the funds from the investors. The second most popular method of fraud is swindling money through dating sites or social networks.
What to check before you start?
One should use a fairly simple instruction: choose a crypto exchange for investment, be sure to set up two-factor authentication and avoid unreliable cryptocurrencies.