If you’ve decided to buy cryptocurrency, the most common first step is to open your very own crypto exchange account. Diving into the world of digital assets for the first time can be overwhelming. As a newbie, you want to do your research first and choose the cryptocurrency exchange that best suits your needs.
But what comes next? Our comprehensive guide on how to set up a crypto exchange account is here to help you out.
What is a Cryptocurrency Exchange Account?
Much like traditional financial transactions, exchanging government-issued currency (known as fiat money) for crypto involves a buyer and a seller.
Crypto exchanges allow users to buy, sell or trade cryptocurrencies and provide storage for their digital assets. You’ll need to create an account to start using an exchange.
A cryptocurrency exchange primarily serves as a trading platform but many prominent exchanges today offer supporting services such as price discovery, trading volume, and staking.
In the early days of crypto, mining was the primary way for someone to obtain BTC. To trade Bitcoin, people organized transactions in online forums, which involved a high degree of risk and depended entirely on the trust between the parties. The first crypto exchanges started operating in 2010 in a highly unregulated environment.
Today, these platforms rank among some of the biggest and most profitable businesses in the crypto sphere. Many existing exchanges have helped improve and revolutionize the way crypto assets are traded, making them more accessible than ever.
Broadly speaking, we can distinguish three types of exchanges in the current crypto market.
Centralized Crypto Exchanges
Centralized crypto exchanges, or CEX, work much like traditional online brokerage platforms. The company provides a platform for buyers and sellers to meet and acts as an intermediary in the trading process.
Their main distinguishing feature is that centralized exchanges own your digital assets. Users entrust the CEX with their private keys, and the exchange holds them akin to a bank. Experienced crypto traders tend to find this aspect risky as the chance of losing all your funds in a hack is always there.
For beginners, however, centralized exchanges hold many pros. They offer fiat gateways, which means you can use different fiat currencies to purchase crypto. Most CEXs are user-friendly, offer customer support, and feature excellent UI and UX.
The biggest centralized exchanges, like Binance and Coinbase, have high liquidity and trading volumes. Most platforms offer supporting tools to facilitate users’ trading decisions, from basic ones like order books to more complex technical analysis features.
Decentralized Crypto Exchanges
Also known as DEX, these exchanges better reflect the primary strive for decentralization of blockchain technologies and the crypto sphere.
A decentralized exchange serves as a platform that pairs buyers with sellers. However, in contrast to CEXs, you own your funds when using a decentralized exchange. All transactions are processed directly, using protocols and decentralized applications without a third party being involved.
Thanks to their decentralized nature, DEXs are much more secure and difficult to hack. However, there is one major downside.
Most decentralized exchanges struggle with low liquidity, low trading volumes and poor UI. They’re much more complicated to use and have no customer support. As such, DEXs may work better for – you guessed it – professional crypto traders.
These are the up-and-coming generation of crypto exchanges. Simply put, the hybrid crypto exchange concept aims to merge the benefits of DEXs and CEXs while eliminating the pain points associated with them.
Hybrid exchanges try to combine the high liquidity and useful features of a CEX, while providing the high level of security offered by DEXs. As a result, users get to own their funds and benefit from high matching speed, fiat gateways and ease of use. Many of these projects may play a significant role in the future of decentralized finance (DeFi).
How does a Crypto Exchange Work?
Once you’ve chosen the best crypto exchange for your specific needs, you can set up an account with the selected platform.
You’ll then need to add funds to your account directly from your bank. Having capital on your crypto exchange account allows you to proceed with a fiat-to-crypto trade. This allows you to buy your chosen tokens in exchange for the fiat money you’ve put in.
Your first crypto holdings are now there – exciting! You can then choose whether to transfer them to a wallet or keep them in the current account. On the exchange, you can trade your crypto assets for other digital currencies or exchange them back for fiat money.
How to Set up a Cryptocurrency Exchange Account?
While each exchange may have a different process, you’ll probably follow some or all of these steps to set up a crypto exchange account.
Step 1 – Download the App
After choosing your preferred crypto exchange to open your account with, download their mobile app on your phone.
Step 2 – Provide Personal Information
To start the sign-up process, new users must provide basic personal details, including full name, physical and email addresses, date of birth and unique phone number.
Step 3 – Add a Payment Method
Next, you will provide your credit card or debit card details for the initial bank transfer necessary to fund your crypto exchange account. The platform can use the same payment details later on for withdrawals.
Step 4 – Set up Two-Factor Authentication
You shouldn’t opt out of adding an extra layer of protection to your new account. Usually, platforms will send a one-time password (OTP) via SMS to the mobile number you provided earlier. Different exchanges will also offer a native password-based security system to increase the account’s resistance against hacker attacks. You can drastically increase the security of your account by enabling two-factor authentication (2FA).
Step 5 – Finish the Account KYC
Once you sign in to your newly opened account, you will notice the option to complete the KYC somewhere on the dashboard. This is the process of verifying your identity.
To verify, most exchanges will ask for a photo of a personal ID or another government-issued document (passport, driver’s license) and a selfie photograph of yourself holding the same document. However, the KYC verification requirements will vary based on the exchange and the user’s country of residence.
Step 6 – Add Funds
Your account is now ready for you to deposit funds using U.S. dollars or other fiat currencies. Most exchanges support money transfers directly from your bank account. To complete the deposit, you must follow the intuitive steps in the exchange dashboard and your payment application.
At this point, the exchange app may inform you of an existing minimum deposit amount. Many exchanges won’t let you make deposits smaller than USD 50. You can also check this information beforehand.
Transaction fees will apply for every deposit you make. These can be up to 2%, depending on the app. Finally, bear in mind that the money will not be deposited immediately. You should wait anywhere from 12 to 72 hours for the funds to become available on your trading account.
Step 7 – Buy Crypto
You’re now ready to get your hands on your first crypto assets! Do your research and pick your favorites.
What are the Best Crypto Exchanges in 2022?
Not all crypto exchanges are created equal. Some excel at ease of use, while others remain more complex as they cater to more advanced traders. Some exchanges prioritize lower fees as part of their business model while others focus on providing useful resources to educate their users. Some focus on Bitcoin and Ethereum, while others work better for trading altcoins like Dogecoin and Litecoin.
As a newbie, you’ll have to take all of these facts into consideration. Another aspect, important for beginners, is finding an exchange that offers fiat/crypto pairings as opposed to only crypto/crypto.
Some of the main features to take into account when choosing a crypto exchange include:
- Fee structure
- Supported cryptocurrencies and crypto/crypto pairings
- Supported payment methods
- Educational support
So, where should you open a crypto exchange account? It depends on your exact needs.
Binance is one of the largest crypto trading platforms used globally by beginners and active traders alike. Founded in 2017 in Hong Kong, the company has since moved its headquarters out of China.
Following a US ban based on regulatory charges, Binance registered Binance.US in 2019. While you can use it to buy BTC and ETH, Binance.US offers only a limited number of cryptocurrencies compared to its parent company’s repertoire of over 300.
With relatively affordable trading fees and a simple interface for long-term investors, the platform supports staking, NFTs and more.
A San Francisco-based exchange founded in 2012 and often recommended as the best platform for beginners. It offers low fees, a user-friendly interface and a great selection of supported crypto tokens. Coinbase has maintained a good reputation and often receives praise for its educational resources.
Unlike most other exchanges, Coinbase is also available to New York residents. In 2015, the US state of New York changed the regulations for companies offering digital currency-related services, requiring them to apply for a costly license. In response, many crypto exchanges decided to stop operating in this state.
Founded in 2011 following the infamous Mt. Gox hack, Kraken is one of the oldest crypto exchanges in the space. Although it’s a US-based company, Kraken’s main activity volume comes from Europe.
Kraken caters to experienced crypto traders and features a wide array of sophisticated trading functionalities. It’s one of the few global crypto exchanges that has offered futures trading since 2019.
Gemini often gets mentioned for its high-security level. As a beginner, you might want to opt for a Gemini account thanks to its convenient and simple-to-use dashboard. Much like Coinbase, it’s widely available in the US, including in New York.
Whether you want to invest in digital assets or become a crypto trader, crypto exchanges are the place to start. Setting up an account at any of the larger crypto exchanges is a relatively quick and simple process.
It’s worth learning about the different categories of exchanges and the pros/cons of some of the main players in the field. Choose the exchange that best fits your needs and remain vigilant by continuously educating yourself on the specifics of trading crypto.