According to asset manager Mikhail Patsan, from a security standpoint, cryptocurrency exchanges have an advantage over traditional exchanges. This is because exchanges do not store funds; they only facilitate the transfer to the designated address, such as a cold wallet.
March 2, 2023, 7:20 Read in UkrainianHow Cryptocurrencies Are Bought and Sold on ExchangesAlongside more conventional cryptocurrency exchanges, cryptocurrency exchanges are gaining popularity in Ukraine. "Minfin" explores their fundamental differences, when they are more convenient to use, and whether it is safe.
In addition to more familiar cryptocurrency exchanges, cryptocurrency exchanges are gaining popularity in Ukraine.3What is a Cryptocurrency Exchange?A cryptocurrency exchange is a service that allows users to buy cryptocurrencies with fiat currency or exchange various cryptocurrencies. In most cases, cryptocurrency exchanges are online platforms, but they can also be physical offices where customers visit.
Typically, the functionality of a cryptocurrency exchange is straightforward. The user specifies the currency they want to purchase and the method of payment. The methods of purchasing cryptocurrencies may vary across different services. For instance, it could involve other cryptocurrency wallets, fiat financial service wallets, bank cards, or even cash.
The main difference between cryptocurrency exchanges and trading platforms is that exchanges do not provide storage for funds. To buy cryptocurrency on an exchange, users need to first open a cryptocurrency wallet, where the coins will be deposited.
Cryptocurrency exchanges are also not suitable for active trading. Attempting to trade here is akin to buying and selling dollars at a currency exchange. While it is possible to earn, in most cases, spreads and fees would "eat up" the profit if transactions are conducted frequently.
"People usually use exchange services when they don't need other functionality. Currently, cryptocurrencies are often used for paying for services or contracts. This method is relevant for those who are not interested in alternative ways of earning cryptocurrency or are trying to preserve their savings after market destabilization," said Viktor Kochetov, the founder of the Kyrrex cryptocurrency exchange, to "Minfin."
Are Cryptocurrency Exchanges Safe?According to asset manager Mikhail Patsan, from a security standpoint, cryptocurrency exchanges have an advantage over traditional exchanges. This is because exchanges do not store funds; they only facilitate the transfer to the designated address, such as a cold wallet.
Read also: How to Create a "Cold" Wallet for Cryptocurrency
"The exchange stores funds in its own accounts. This is a risk for us because, with improper risk management, the exchange can go bankrupt (as was the case with FTX), and we will not get our funds back," he explains.
However, there are risks here as well. "At any moment, both a cryptocurrency exchange and a cryptocurrency exchange point can deceive users, 'burst,' go bankrupt, fail in the system, go beyond liquidity, or fall under regulatory factors affecting the market. The cryptocurrency market is still not regulated 100%, and we are far from this stage, so there is a risk of not getting your money in cryptocurrency exchange points," warns Alexander Bolyan, an analyst at Esperio.
Moreover, exchanges are often more well-known than exchanges. They have been operating for a long time, have more clients, and invest significant funds in marketing activities. Therefore, they are more prominent. However, if you just search for a cryptocurrency exchange through a search engine, there is a higher chance of encountering scammers.
In this regard, as Bolyan notes, Ukrainians often use exchanges whose clients were already their friends or acquaintances to avoid falling victim to scammers.
Before using the services of an unknown exchange, it makes sense to search for more information about it or test its operation with small amounts.
What to Pay Attention toCryptocurrency exchanges have two ways of earning: the first is fees for services. For the exchanges checked by "Minfin," they did not differ much from fees for replenishment and transactions on a cryptocurrency exchange.
As a rule, commissions range from 1.5% to 5%. An additional fee may be charged by the bank or financial company, as well as for blockchain cryptocurrencies. For example, for Bitcoin, this amount is around $0.5.
Some cryptocurrency exchanges may claim not to charge fees or only charge a symbolic fee. However, it's essential to consider the second way they earn: the exchange rate at which they sell or buy cryptocurrency. Often, it significantly differs from the rate set by cryptocurrency exchanges.
For example, in one of the exchanges where transaction fees are not specified, the purchase price of Bitcoin is $24,251, and the selling price is $23,311. In other words, the spread is about 3.9%. For comparison, at the same time, according to "Minfin's" data, the average exchange rate of Bitcoin was $23,672.
Whether to consider such a difference acceptable is up to each client. However, it's worth recalculating at what price the transaction takes place on the platform.
March 2, 2023, 7:20 Read in UkrainianHow Cryptocurrencies Are Bought and Sold on ExchangesAlongside more conventional cryptocurrency exchanges, cryptocurrency exchanges are gaining popularity in Ukraine. "Minfin" explores their fundamental differences, when they are more convenient to use, and whether it is safe.
In addition to more familiar cryptocurrency exchanges, cryptocurrency exchanges are gaining popularity in Ukraine.3What is a Cryptocurrency Exchange?A cryptocurrency exchange is a service that allows users to buy cryptocurrencies with fiat currency or exchange various cryptocurrencies. In most cases, cryptocurrency exchanges are online platforms, but they can also be physical offices where customers visit.
Typically, the functionality of a cryptocurrency exchange is straightforward. The user specifies the currency they want to purchase and the method of payment. The methods of purchasing cryptocurrencies may vary across different services. For instance, it could involve other cryptocurrency wallets, fiat financial service wallets, bank cards, or even cash.
The main difference between cryptocurrency exchanges and trading platforms is that exchanges do not provide storage for funds. To buy cryptocurrency on an exchange, users need to first open a cryptocurrency wallet, where the coins will be deposited.
Cryptocurrency exchanges are also not suitable for active trading. Attempting to trade here is akin to buying and selling dollars at a currency exchange. While it is possible to earn, in most cases, spreads and fees would "eat up" the profit if transactions are conducted frequently.
"People usually use exchange services when they don't need other functionality. Currently, cryptocurrencies are often used for paying for services or contracts. This method is relevant for those who are not interested in alternative ways of earning cryptocurrency or are trying to preserve their savings after market destabilization," said Viktor Kochetov, the founder of the Kyrrex cryptocurrency exchange, to "Minfin."
Are Cryptocurrency Exchanges Safe?According to asset manager Mikhail Patsan, from a security standpoint, cryptocurrency exchanges have an advantage over traditional exchanges. This is because exchanges do not store funds; they only facilitate the transfer to the designated address, such as a cold wallet.
Read also: How to Create a "Cold" Wallet for Cryptocurrency
"The exchange stores funds in its own accounts. This is a risk for us because, with improper risk management, the exchange can go bankrupt (as was the case with FTX), and we will not get our funds back," he explains.
However, there are risks here as well. "At any moment, both a cryptocurrency exchange and a cryptocurrency exchange point can deceive users, 'burst,' go bankrupt, fail in the system, go beyond liquidity, or fall under regulatory factors affecting the market. The cryptocurrency market is still not regulated 100%, and we are far from this stage, so there is a risk of not getting your money in cryptocurrency exchange points," warns Alexander Bolyan, an analyst at Esperio.
Moreover, exchanges are often more well-known than exchanges. They have been operating for a long time, have more clients, and invest significant funds in marketing activities. Therefore, they are more prominent. However, if you just search for a cryptocurrency exchange through a search engine, there is a higher chance of encountering scammers.
In this regard, as Bolyan notes, Ukrainians often use exchanges whose clients were already their friends or acquaintances to avoid falling victim to scammers.
Before using the services of an unknown exchange, it makes sense to search for more information about it or test its operation with small amounts.
What to Pay Attention toCryptocurrency exchanges have two ways of earning: the first is fees for services. For the exchanges checked by "Minfin," they did not differ much from fees for replenishment and transactions on a cryptocurrency exchange.
As a rule, commissions range from 1.5% to 5%. An additional fee may be charged by the bank or financial company, as well as for blockchain cryptocurrencies. For example, for Bitcoin, this amount is around $0.5.
Some cryptocurrency exchanges may claim not to charge fees or only charge a symbolic fee. However, it's essential to consider the second way they earn: the exchange rate at which they sell or buy cryptocurrency. Often, it significantly differs from the rate set by cryptocurrency exchanges.
For example, in one of the exchanges where transaction fees are not specified, the purchase price of Bitcoin is $24,251, and the selling price is $23,311. In other words, the spread is about 3.9%. For comparison, at the same time, according to "Minfin's" data, the average exchange rate of Bitcoin was $23,672.
Whether to consider such a difference acceptable is up to each client. However, it's worth recalculating at what price the transaction takes place on the platform.