Cryptocurrency exchanges remain the main gateways for people to access different cryptocurrencies. Centralized exchanges have dominated the market. There are now more than 300 cryptocurrency exchanges allowing for buying as well as trading of cryptocurrencies. The most famous one such as Binance, Coinbase, OKex and Bitfinex dominate the market in terms of trade volumes. New ones are being introduced every day. In Africa, some of the most common are: Coindirect operating in Kenya, Nigeria and South Africa, Luno in South Africa, Paxful, Remitano, Belfrics, and new ones are in the pipeline.
The most common peer-to-peer cryptocurrency exchanges are localbitcoins and localethereum which allow people to exchange fiat to bitcoin or Ethereum and vice-versa respectively in various countries. However, centralized cryptocurrency exchanges are still favourite because of ease of exchange and trade from hundreds of different altcoins and not just bitcoin and ethereum. Most centralized exchanges are custodial in nature meaning they hold the private keys of the user. From ideological and security standpoint, it is envisaged that users should be in full control of their private keys. As such, decentralized exchanges (DEX) are hailed as the future of cryptocurrency trading. Binance has even launched a DEX and OKEx says it will launch its own decentralized exchange.
Here are some of the features to look out for when choosing a cryptocurrency exchange.
Fees: check out deposit and transaction fees. Compare it with others. Most do not charge any deposit fees for crypto but charge for fiat depending on the means you use to fund your account. Most of the fee is made on trading. Industry estimates predicts about 0.25% fee for crypto-to-crypto exchanges. As for withdrawal fee, the average is predicted to be around 0.000812 BTC. You can check out more on cryptowisser which tracks fees for various exchanges.
Reputation: most of the hacks that have taken place in brief history of cryptocurrencies have taken place in exchanges. It is estimated that a total of at least 980,000 bitcoins have been lost through exchange hacks. As a normal user, it may be hard to determine the technical robustness of an exchange. However, you can gauge the reputation through reviews. You can use forums such as Reddit, YouTube, Twitter and blogs to determine the reputation of an exchange. A simple online search can give you some context into the exchange. Also try and determine if they are regulated in the country they are operating.
Cryptocurrencies supported: choose one that has more than one cryptocurrency like bitcoin in order to have more options. However, the number of currencies supported is not co-related to the reputation so an exchange that supports more currencies does not automatically mean it is better than the one that are few.
Liquidity: before getting started, ensure the exchange has sufficient liquidity meaning that it is easy to convert from one currency to another. If there are few users, the volumes might be low and could take time to transact especially lager amounts. Larger exchanges do not normally face this challenge but upcoming ones could face albeit temporarily as they grow.
Verification details: most of exchanges nowadays require some form of verification such as national ID and email
Payment methods supported: choose one that allows you to easily move from crypto to local fiat like shillings, Naira, etc. Nowadays more exchanges especially those in Africa are supporting mobile money such as Mpesa. Also some exchanges are limited based on geography and this affects the type of payment methods allowed. For example, you cannot access coinbase in many countries outside USA and few in Europe.
Exchange rate: All exchanges do not have one exchange rate (crypto-fiat). However, the difference should not be so big. You can check out a few other exchanges to determine is the exchange rate is fair.
Regulatory environment: in Africa, there has been no clear guideline about cryptocurrencies in general. Some countries such as South Africa have begun efforts to regulate crypto exchanges. Efforts are however being made by various bodies to provide guidelines for regulating crypto exchanges in terms of customer protection, fraud, anti-money laundering. Nonetheless, this expected as this is a relatively new field.
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