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Are Crypto Exchanges Safe? How to Choose an Exchange You Can Trust

2020-12-30

Key Takeaways

  • In this article, you’ll learn the most important factors you need to consider before creating a cryptocurrency exchange account. 

  • Security is the top priority to consider when picking an exchange to trade your crypto assets. 

  • Aside from security, make sure you consider other important factors like products and services, fees, profitability, reputation, user experience and more.

[This article has been updated as of September 3, 2021.] 

The Search For an Exchange that You Can Trust

This year, Bitcoin reached mainstream status, with individuals, institutions and even countries getting involved. Bitcoin prices climbed from below $30,000 to an all-time high of around $65,000 this year. Hence, there is a huge demand for high-quality, trusted cryptocurrency exchanges where people can buy and sell Bitcoin and other altcoins. Among several considerations when picking a suitable crypto exchange, security and safety are of utmost importance to crypto traders. 

Crypto exchanges’ need for security  is increasing over time. As more people get into crypto and learn the ropes, protecting users  is the most important goal for major platforms available in the market. Compared to a few years ago, the top crypto exchanges have implemented increasingly sophisticated security systems, like stringent identity verification and authentication measures, AI-based analysis and several collaborations with world-class cybersecurity firms. While security has improved significantly over the years, not all exchanges are created equal.

Aside from security, cryptocurrency users are looking for the right combination of available products and services, convenient user experience and abundant opportunities for earning and profitability, among other factors. 

How do you find an exchange you can trust when there are hundreds of them currently vying for your attention? What are the criteria that make a trusted exchange? Although there are hundreds of cryptocurrency exchanges, only a handful meet the criteria described below. 

1. Top Priority: Security

When it comes to selecting a crypto exchange to trust, security should always be the top factor to consider. From the minute you deposit fiat currency in your exchange wallet to the moment you start trading, every step of the process has to be secure. 

At first glance, it may not be easy to detect a crypto platform’s level of security, but there are some things you can look out for. . Your cryptocurrency is only as safe as the method you use to store it. Therefore, it's crucial to choose a partner you can trust and rely on — one that protects your private data and funds with the latest security standards, a professional security team and, ideally, a recovery fund as a cherry on top. 

1.1 Security Standards

Hacking a specific cryptocurrency is difficult, requiring the daunting task of taking over the majority of computers that run the token’s blockchain network.  Hence, it’s much easier for hackers to exploit a crypto exchange’s weak points in an attempt to steal users' funds or data. 

Hence, when looking at crypto exchange security standards, you should consider both Internet security standards and crypto standards. For a crypto exchange to pass Internet security standards, it should have sufficient protections related to Internet network access, including accounts, funds, points of contact and more. The exchange should also have sufficient crypto-related protections, including the safekeeping of a user’s crypto wallets, keys,\ and more.

The best crypto exchanges in the world have the latest security standards for both Internet and crypto. Their employees are constantly trained to prevent and counter breach or intrusion incidents. They undergo regular penetration testing and, in turn, educate their users on cyber-hygiene—be it safe Internet use or suitable ways to access crypto tokens, blockchains and projects. Have a read about general security principles and crypto security to better understand crypto security.

1.2 Safety of Funds 

Cryptocurrency markets are ripe with malicious actors and hackers looking for an opportunity to exploit exchanges and steal your funds. Exchanges are a popular target for hackers due to the large volume of money stored on them, and although they’re rarely succesful, it's good to use an exchange with a funds recovery plan or insurance plan. 

1.3 Security team 

The most important team at every crypto exchange is the security team. For this reason, many exchanges carefully protect the identity of their cybersecurity specialists, to lessen the probability of hackers getting in touch with them and exploring potential exploits. Ideally, you want to register on an exchange with an active security team that regularly publishes reports and research analysis, and collaborates  with other projects to improve the security of the entire crypto industry. 

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

1.4 User-Protection Security Programs 

Speaking of incentives and rewards, a proactive security team should always come up with contingency plans to address all potential weak points when it comes to using a crypto platform, from user education to insurance. This way, no matter what happens, users’ funds are protected and taken care of.

Popular and viable protection programs include regular posting of details on security updates, as well as the provision of insurance funds and programs such as the SAFU and BNB Pioneer Burn program, which cover potential fund losses for users who suffered from account breaches or human errors in transmitting cryptocurrencies.

1.5 Transparency

For a crypto exchange, threats aren't just external but also internal. The ideal exchange is transparent to its users from all points of view – clear and understandable terms and conditions, fee schedule, transparent operations and a comprehensive roadmap. The exchange should operate in an easy way for its users and stakeholders to observe the exchange’s operations or review how the funds are stored and protected. Transparency is extremely important for all exchanges, but twice as much for exchanges that also issue their own stablecoins. You can read more about transparency in stablecoins on Binance Academy. 

1.6 User Data Protection and KYC Enhancement 

The first process you'll go through is registration, during which you will go through know-your-customer (KYC) verification. At a bare minimum, 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 this to proactively protect users and the crypto industry overall. 

2. Products and Services

An ideal exchange should offer a wide variety of trading pairs, all of which are continuously audited and vetted, as well as easy access to major payment methods (both cash-in and cash-out). While it’s important to have many trading pair options, it’s more essential to have strict standards for trading pairs, products and services. An exchange with fewer trading pairs that are high-volume and secure will definitely be better than an exchange with more trading pairs that are sub-par.

2.1 Deposit & Withdrawal Methods

Before you start trading and using different products, you’ll need to obtain some crypto. Some exchanges might offer only 1 or 2 payment methods, but it's always better to choose an exchange with multiple options such as debit/credit card payments, bank transfer, P2P or third-party payment providers. Each method has its pros and cons so always consider individual methods according to your circumstances and region.

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

  1. Fiat currency deposits and withdrawals

  2. Crypto deposits and withdrawals via stablecoins (USDT, BUSD, USDT, etc.) and mainstream crypto tokens (BTC, ETH, other popular tokens) 

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

It is also important that each of these payment gateways are secure. Pay attention to how security is implemented on each of these channels.

Aside from that, the available payment methods should provide users with sufficient flexibility and convenience. Ideally, they should operate 24/7, on both mobile and desktop, and, if possible, equipped with a Lite mode for even easier access. 

2.2 Cryptocurrencies & Trading Pairs

Many exchanges provide a range of different cryptocurrencies to choose from. Undoubtedly buying Bitcoin is the first choice of many new crypto users, but later on, you might want to buy some other popular crypto tokens such as Ethereum, BNB, BUSD or 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 provides you with an increased selection of trading opportunities.

Aside from variety, users should also look into the quality of the tokens listed on the platform. Exchanges should be held to a high standard when it comes to the tokens it features, ensuring that regardless of what tokens a user selects, it has a good reputation and an active team. 

An ideal exchange also has to quickly list new cryptocurrencies that are becoming popular, 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 from buying bitcoin or other crypto? Do you only plan to buy and HODL, or do you want more for your money? Global exchanges are often surrounded by an extensive ecosystem of supplementary products and services, such as crypto debit cards, assets custody and protection, trading services and other financial services designed to improve your crypto experience and provide additional earning potential. 

In addition, an ideal exchange has to have a top-notch trading infrastructure, as well as a suite of reliable investing and earning products. As much as possible, this exchange should also provide adequate educational support, including FAQs, articles, blogs and more materials to aid users in their crypto journey.

Whatever your plan is for your crypto, make sure to pick an exchange that offers the solutions you need. What separates a great crypto exchange from an inferior one is the ecosystem it provides. If an exchange is just focused on being an exchange, instead of providing a holistic crypto experience, then you’re better off using an exchange with a more comprehensive ecosystem. 

2.4 System Performance

You need an exchange that is reliable and withstands volatile market movements, sustains increased user activity and provides liquid markets for quick trade executions. 

Not all exchanges make this available, but try to look for the performance of their matching engine. This can tell how many trades the exchange can execute per second. Then, go and visit their social media or blog to see the maintenance frequency and past outages. 

3. Fees and Profitability

Each user has a different experience when it comes to using an exchange, but the goal is usually the same – invest and earn a profit. To maximize your investment potential, it's important to look for an exchange with a fair and transparent fee schedule, profitable products and a generous returns scheme.

3.1 Fees & Referral Commissions 

Fees are the primary source of revenue for cryptocurrency exchanges. Every time you make a trade or transaction, you may have to pay a fee based on the exchange fee schedule. A generally acceptable maker/taker fee (or buyer/seller order) would be between 0.1% to 0.2%. 

Exchanges usually don't charge any fees on deposits and only a small fee on withdrawals, but this might differ across the platforms. Some exchanges return a portion of fees as referral commission to the user who recommended new friends to register. Consider your trading volume and calculate your average fees before you register. If you trade higher volumes, consider VIP programs that provide decreased fees as well as unique benefits within the platform, as well as other individual and business referral opportunities that help you grow your funds as the exchange expands its network.

3.2 Profitability

As the cryptocurrency market grows and the services develop, investing in crypto is not just about trading and holding. Different services allow you to leverage your holdings and increase profits with a range of products that provide different risk/reward ratios. Your selected exchange should provide you with profitable products with attractive earning potentials such as savings, staking, loans, futures, and margin trading. More-developed global exchanges also offer a new form of financial services, called DeFi, or decentralized finance. Competitions and giveaways are a bonus. 

Here are some tell-tale signs that an exchange is good for you profit-wise:

  • The APYs (annual percentage yields) on its crypto financial products are higher than the rates on comparable products on other platforms.

  • The exchange has delivered on most, if not all, of the promises it stated on its roadmap.

  • The platform takes the extra mile of providing earnings on tokens that are stored/staked in the exchange’s wallets, with zero fees attached.

4. Reputation and Track Record

Once you verify that your selected exchange is secure, meets your needs and offers fair conditions, it's time to review their brand and system. Registering on an exchange and depositing your hard-earned money takes trust. Before you send your money to an exchange, always verify their reputation, past incidents or scandals, legal and regulatory issues and system performance. 

4.1 Reputation

Reputation is one of the most decisive factors for a successful cryptocurrency exchange.  Exchanges realize this very well, and a reputable company will do everything in its power to protect its users and name. One of the easiest ways to evaluate an exchange is to see what the community and social media followers say. You can also search the exchange name on the google news section to see the media reports. Who is the CEO and what kind of team is behind the exchange? The team should always demonstrate approachability and a desire to listen to the community feedback. 

4.2 Leadership 

Actions speak louder than words. Search Google and social media such as Twitter, Facebook, or Reddit for information about recent statements made by an exchange’s leaders, and compare them to what is actually happening on the exchange. Put good use to the Bitcoin memo “Don’t trust; verify,” and always check the accuracy of the information with multiple sources. Remember, always watch out for FUD

For instance, great leaders are transparent, regularly interacting with the crypto community on industry matters, whether it concerns the exchange they run, or bigger topics.

Take a moment to think about the values that matter for you, and check if the people running the exchange you use are reflecting those values.

4.3 Social Responsibility 

Beyond the exchange’s leaders, the company as a whole should exhibit praiseworthy values and actions. In addition to running an exchange, a crypto company should take proactive initiatives to  improve the world. After all, crypto was created to help unprivileged people gain access to financial services. 

One good characteristic of a socially responsible exchange is its focus on educating everyone about crypto, from the basics of buying and trading tokens to in-depth analysis and summaries of crypto’s foundations. A few exchanges even go the extra mile to create platforms for unbiased and updated cryptocurrency education.  The ideal exchange should provide you with plenty of learning materials where you can learn more about security, trading, finance, crypto and everything that’s related.

Another admirable quality to look for is the extent to which the exchange is  using blockchain and cryptocurrencies to help people in need around the world. The best exchanges are those who not only help people earn a living through trading, but also provide channels through which people can share what they have with those who need it the most.

5. User Experience and Satisfaction

The exchange you choose must be reliable, easy to use and intuitive. Can the exchange withstand large trading volume during volatile markets? Does the interface provide a seamless experience? No one wants to waste time looking around menus for functions and buttons. 

5.1 User Experience

You will spend a few hours looking at the interface of your selected exchange, so it’s a good idea to make sure you like the visuals and the user flow.Download their app or crawl through their website. Get the feel of the interface. Is it intuitive and straightforward? Is the color scheme easy on your eyes? 

5.2 Customer Support & Satisfaction

Bitcoin never sleeps. The cryptocurrency market is open 24/7, 365 days a year, non-stop. Eventually, you’re going to need some form of support. Check the customer satisfaction and customer support reviews for the exchange to see if you can count on their team when you experience some issue. Look for an exchange that provides 24/7 support alongside high response speed and resolution rate. Global exchanges also often provide support in different languages so make sure that your preferred language is supported.

Conclusion

It’s not an easy task to find an exchange that meets all the criteria and there are only a few that tick-off all the boxes. But it’s worth the time to DYOR before you trust someone with your money. With the explosive growth of the crypto industry, crypto exchanges are going to the mainstream. The criteria for evaluating exchanges are becoming complex and technical, which is surely more challenging than before. 

At Binance, we are committed to user security, ensuring all the items listed in this article play a crucial role in our day to day operations. . In fact, for some items, Binance would be the only exchange that exhibits that particular trait. 

Register on Binance

Among the very few options that meet the criteria, we want to invite you to join Binance.com. As the world’s largest cryptocurrency exchange by trading volume, plus26 supported languages, we offer you an ecosystem of crypto-related products and services like no one else. Trusted by millions of users, we offer multiple deposit and withdrawal methods, a wide range of trading pairs, the lowest fees, an unbeatable matching engine and 24/7 support that is prepared to resolve your issues in 11 languages. Trade on the go with the Binance App or enjoy the performance of Binance Desktop.