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Choosing a cryptocurrency exchange can be a make-or-break decision in 2023. While the crypto market is maturing and stabilizing, some foul players will be washed ashore. For example, in 2022, the collapse of FTX affected more than 1.2 million users.
Whether you are an experienced trader or a beginner that needs an exchange for one transaction, it makes sense to check the exchange before tapping the balance. Here are the 7 most important areas to be checked before trusting an exchange according to expert traders and industry insiders.
1: Reputation check: trading volume and rankings
News outlets and reviews can be biased but they also serve as a test paper for the crypto exchange’s reputation. One way to check the reputation is to follow the reports of leading analytical and consulting companies like the Boston Consulting Group. According to the BCG report, Bitget has surpassed KuCoin or Huobi Global in trading volume in 2022.
Another way is to take raw data and make an analysis. On the information aggregators like Coinmarketcap, the top derivatives exchanges are KuCoin, Bitget, OKX, ByBit, and Binance. Rather than just looking at their trading volumes, it is crucial to check the patterns and trends. Are people pouring money in or taking it out? For example, Bitget’s 300% increase in total transaction volume last year can be seen as a sign of healthy growth.
And finally, reputation can be checked by various social media reviews and real user feedback.
2: Safety check: protection funds and liquidity supply
In light of the recent wave of bankruptcy cases both in banks and crypto, it is worth looking beyond a shiny interface, rolling up the sleeves and learning how the liquidity is backed up. For example, Bitget launched the second largest user protection fund among CEXs in 2022 to safeguard users’ assets and has frozen those assets so it could be used only in the case of emergency like an insurance policy fund.
The Proof of Reserves can be also checked with open-source tools. For Bitget, you can check the ‘Merklevalidator’ on GitHub and retrieve the current reserve ratio. It should be 1:1 for the exchange to be able to make good on their commitments. The lack of transparent instruments on the open-source platforms is a red flag.
3: Security check: extra safety measures
Even if an exchange has a solid shield, most of the vulnerabilities are exploited on the users’ side. In other words, having even the strongest password for the exchange might be simply not enough in 2023.
If a crypto exchange truly cares for its users’ funds protection, it will help users to add additional security lawyers. For example, by adding 2-factor authentication like Bitget.
Apart from figuring out all necessary additional security measures, it is crucial to be alert with each transaction, login, or any other interaction. Social engineering is still the biggest threat, and it is getting worse: according to Kaspersky, the number of phishing attacks has doubled last year.
4: Legal check: licenses and countries
Bitcoin was created with the idea of borderless transactions with no centralized governance. While decentralized currencies remain decentralized, the same is not true for the exchanges that help to bridge fiat and cryptocurrencies.
Having an easy interface and interoperability comes at a cost. In the intersection of the world such things as state-approved license matters. Most of the crypto exchanges are already operating under some jurisdiction but nevertheless,.
Some exchanges also clearly state that they do not operate in some countries. To avoid problems with fund withdrawals and eliminate the risk of having a blocked account with frozen funds, it is necessary to check the list of countries and make sure that the country of residence is not on the exception list. For example, In Africa, Binance supports only 2 countries. The United States or the United Kingdom is also not on the list.
5: Transparency check: make sure it will not eat up your profits
Usually, exchanges charge at least 3 types of fees: deposit fees, trading fees, and withdrawal fees. Adding that to the network gas or other operations could seriously eat up marginal profits.
The fees vary depending on the cryptocurrency, country, ways of payment, type of transaction and other factors. Some exchanges also offer discounts based on volume or customer loyalty.
Of course, trustworthy exchanges clearly state their fee structure as well as their Proof-of-Reserves and collaterals. Hidden commissions or unclear communication is a red flag.
6: Сompleteness check: trading instruments and pairs
Even for beginners, it is necessary to check whether the crypto exchange is setting traders up for success. Trustworthy exchanges have all the necessary pairs and instruments in place.
Bitget, for instance, was the first crypto exchange to introduce its own copy trading features that help traders with automated trading. Before that, traders had to use a third-party solution to copy the strategy or set up a trading robot with API and that could lead to security concerns.
Having an active community of traders also brings value both to experienced traders and beginners. Trading pairs, elaborated instruments, and an active community attract the best traders with liquidity that adds to the general trustworthy index.
7: Focus-on-customer check: friendly interface and support
At the nascent stages of its development, crypto exchanges were lagging at best. The interfaces were designed with an idea that geeks will follow. But in 2023, the crypto world is far from being an elite club of geeks. Now crypto exchanges provide an instrument for everyone when traditional finance has shown its lackings.
Trustworthy exchanges care for customer user experience, have transparent FAQ sections, and provide 24/7 support. It is worth checking what is going on with the exchange’s chat on Telegram and reading the support policies.
All in one, having those 7 boxes checked is a bare minimum for an exchange to be trustworthy. It has to care for its customers, provide all necessary instruments for traders to succeed, be transparent about fees and limits, and help users protect their funds with additional safety features. Needless to say, it has to be licensed in the country of interest and be compliant to legal frameworks in general.
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