Security. According to Aziz from MasterTheCrypto, “the level and type of security mechanisms employed by an exchange is vital in ensuring that your coins are safe.” He notes that holding assets offline in cold storage, offering two-factor authentication and using encrypted email to verify each transaction are ways that some exchanges demonstrate that they take your security seriously.
Fees. Exchanges can get you coming and going with so-called “maker” and “taker” charges, although many have shifted most or all of the burden to the taker side. Full transaction charges range anywhere from 0.038% for Coinfloor to 0.86% for BitBay, according to BitcoinWiki.
What makes some better
True disintermediation. Fees will continue to be a race to the bottom as long as exchanges continue to be largely undifferentiated. But what if someone comes up with another model? One point of light on the horizon is BQT, for “Better, Quicker, Transparent,” which presents itself as a true peer-to-peer platform, so you are trading with a specific counterparty rather than with a pool of potential counterparties aggregated by the exchange.
“P2P exchanges like ours carry one unique advantage: you deal with an actual person on the other end of the deal,” BQT chief executive Edward W. Mandel tells me. “This decentralized approach — which was the whole reason to adopt crypto in the first place — provides the flexibility to negotiate trades one-on-one, then rate and share your trading experience, so that you and everyone else knows the reputation of each of your potential counterparties.”
Exchange rates. Fees are only part of the transaction cost, and probably not the biggest. Where the exchanges most likely make the biggest chunk of their income is through arbitrage. In two readings taken via CNBC nine seconds apart on July 27, bitcoin was trading at $8,234 on Bitfinex and $8,219 on Coinbase. This is one of those problems that’ll solve itself as the market gets thicker, but there’s currently a huge opportunity for cryptocurrency aggregators to simultaneously buy and sell these coins, making a risk-free $15 for every BTC they churn. We, as small, retail traders, are subsidizing this behavior with another 0.2% tacked on in shadow fees.
Customer Service. It’s telling that, of all the exchanges ranked by BitcoinWiki, none of them had particularly strong ratings. Customer service in this market is seriously lagging. Whoever solves this is going to have a serious leg up when crypto adoption goes mainstream.
Liquidity. These exchanges only work if you can get your money out as fast as you were able to put it in. So here are three metrics to consider: 1) value of all assets held at the exchange, 2) value of transactions over the past 30 days and 3) number of accounts at the exchange. Take all three together as a dashboard, because any of them can be manipulated or easily misinterpreted. It’s very likely, for example, that the number of accounts on an exchange will be a multiple of the actual number of individuals trading there.