Crypto Exchanges

Crypto exchanges act as a link between buyers and sellers of digital currencies like Bitcoin. However, they do carry some fundamental security risks. This 2024 guide to comparing crypto exchanges lists the best platforms with the largest volumes and lowest fees in the UK. Our team also explain how crypto exchanges make money and why safety concerns are leading retail investors to crypto brokers.

What Is A Crypto Exchange?

Crypto exchanges are generally split into centralised vs decentralised exchanges. Centralised exchanges operate similarly to a stock exchange; they act as an intermediary between buyers and sellers. These platforms essentially work as a marketplace where buyers for crypto tokens are matched with sellers. Examples of some of the oldest and most popular centralised exchanges include Binance, Bybit, Gemini, and Coinbase.

While each exchange decides which coins can be traded, it is the market that decides the value of those crypto assets. Each cryptocurrency is valued against other altcoins and stablecoins, much like the forex market.

Centralised exchanges are often a better choice for beginners than decentralised platforms as many also allow users to exchange their fiat currency for crypto (an ‘onramp’ service). These onramp services mean that clients do not need to go elsewhere to purchase their first cryptos, often requiring additional know-your-customer (KYC) checks and lead times.

On the other hand, decentralised crypto exchanges allow peer-to-peer (P2P) transactions. There is no intermediary in these transactions and no business or third-party controls it. Instead, operations are controlled by smart contracts, which are programmed to perform particular functions within the blockchain. Decentralised exchanges are not usually legally registered in a particular country and are managed by their own (native) crypto token market.

That being said, the basic principles are the same – they both allow users to trade cryptocurrencies and other decentralised crypto assets. PancakeSwap and Kyber are popular examples of decentralised crypto exchanges with substantial market share. Decentralised platforms are usually designed for more experienced investors.

How Do Crypto Exchanges Make Money?

In return for being the intermediary between DeFi buyers and sellers, crypto exchanges charge transaction fees. These are usually a fixed fee per trade but the percentage can vary depending on the volume and token in question.

Exchange platforms may also impose spreads (the difference between the bid and ask prices). Generally, the less liquid the market, the higher the spread.

Another way that some crypto exchanges make money is through deposits and withdrawals. Although onramp and offramp services are convenient features for those who like to switch between crypto and fiat currency, many exchanges will charge a fee for this service.

Some exchanges also pass network fees (sometimes referred to as gas fees) on to users but they generally do not make money from this. The money from these fees goes to miners (if a proof-of-work blockchain, which some consider fairly old and outdated now) or those staking crypto (if a proof-of-stake blockchain) to incentivise them to validate transactions. These fees can vary significantly depending on the size of the transaction and the level of supply and demand on the blockchain at the time.

Crypto Exchanges Vs Crypto Brokers

Although many use the terms interchangeably, there are fundamental differences between crypto exchanges and crypto brokers. An exchange is an intermediary between one trader and another. A crypto brokerage, on the other hand, connects an investor with the market and may buy and sell cryptos on behalf of its clients.

Brokerages also generally offer other instruments in addition to cryptos, like forex, stocks and commodities. Leading firms also provide derivatives like CFDs, so traders can go long or short on Bitcoin and other digital assets without taking ownership of the tokens.

Security and safety is a key consideration when choosing between exchanges and brokerages. Crypto brokers are generally more reputable and trustworthy. The top platforms have a track record in traditional financial products alongside oversight from a trusted regulator, such as the FCA.

There has also been an increasing number of scams, fraudulent players, and cyber attacks amongst crypto exchanges. FTX is the latest high-profile exchange that failed, collapsing before returning the billions it owed to customers.

Exchanges usually have a wider range of cryptos on offer because that is what they specialise in. For example, Binance has over 350 cryptocurrencies on its platform, whereas some brokerages may have fewer than 10.

Another difference is that the top crypto exchanges will usually accept both fiat and crypto deposits. Aside from a few online brokerages that accept crypto deposits, most will only accept deposits in fiat currency with debit/credit cards, PayPal, or another method like a bank transfer.

Overall, crypto brokers are usually more secure with established backgrounds in retail investing, robust financial controls and typically operate with oversight from trustworthy regulators (though not always on crypto products).

How To Choose Crypto Exchanges

Coins & Tokens

Although most crypto exchanges will support users with the buying and selling of the main cryptocurrencies like Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP), some offer more tokens than others. Bitfinex supports over 170 cryptocurrencies and Kraken supports more than 185 tokens for spot trading.

However, bear in mind that, although more cryptos may seem like a good thing, obscure tokens can be extremely volatile and illiquid, adding substantial risk to your portfolio.

Vehicles

Crypto exchanges usually allow direct investment in the actual cryptocurrencies and blockchains themselves. This means that, when you invest in Bitcoin, you actually own some Bitcoin. However, with some exchanges like KuCoin, clients can speculate using derivatives products, such as futures.

Derivatives involve speculating on the price movement of a crypto or stablecoin without owning the underlying asset. Other types of derivatives include CFDs and options, usually being traded with leverage, which means borrowing capital to invest more. That being said, margin investing can lead to increased losses, as well as magnified profits.

Binance Platform

Fees

Investors will struggle to find an exchange with zero commission and no other fees. Transaction fees are the most common charge imposed by crypto exchanges and most have rates between 0% and 1.5% per transaction.

For example, Coinbase charges a 1% flat fee for crypto transactions. In comparison, Kraken has incentives by volume; the higher your 30-day trading volume, the lower your transaction fees are. Traders with high volume, including institutional investors and high-net-worth individuals, will therefore find some of the lowest fees in the market here.

Some crypto exchanges vary their fees depending on whether the user is a market maker or a market taker. Makers are those that create buy or sell orders that are not carried out immediately, thereby adding liquidity to the market. Takers, on the other hand, create instant buy or sell orders, removing liquidity from the market. Where there is a discrepancy, maker fees are usually the lower of the two.

Our experts found that deposit and withdrawal fees are also common, even if the transaction is purely crypto and does not involve fiat-to-crypto or crypto-to-fiat. Kraken has a withdrawal fee for Bitcoin of 0.00001 BTC.

Fees also apply on decentralised exchanges. For example, Uniswap has a 0.3% fee for swapping tokens.

Other fees include:

• Gas/network fees to incentivise the validation of transactions on the blockchain (exchanges may pass these on to users)
• Spreads to allow the exchange to lock in the price for a certain period and cover themselves if the market moves in that time
• Staking fees (Coinbase does not charge a fee to stake but does charge commission on any rewards from staking)

Safety & Security

There is always a risk when investing with crypto exchanges and storing coins in its wallets or your own. In recent years, there have been multiple incidents of global exchanges being hacked and customer funds being lost. The quarterly trading volume of Coinbase is a whopping $145B and this makes it and other exchanges prime targets for international criminals. There have also been several instances of exchanges that have collapsed.

Unlike decentralised exchanges, where users typically use their own wallets to hold their crypto (not to say decentralised platforms are without security risks), centralised exchanges generally act as custodians for their customers’ deposits. Although the biggest companies will usually hold the majority of client funds in cold storage to mitigate the risk of hacks, a smaller portion will usually be held in an online hot wallet to ensure customers have easy access to their funds.

Even though there is always an underlying risk when investing with crypto exchanges, some have taken measures to reduce their own and their clients’ exposure. In exchange for a subscription fee, Coinbase has an indemnification option of up to $1m. Its funds are also insured up to a certain limit for theft from the exchange, although this does not cover losses that have resulted from unauthorised access to your personal account.

Always make sure to check the history of the exchange in the news and whether there have been any hacks or funds lost in the past, even for the largest and seemingly most reputable cryptocurrency exchanges, as well as the small ones.

Regulation

The crypto industry in the UK is generally unregulated, which means there is little or no insurance or consumer protection (such as access to an ombudsman). That said, crypto exchanges based within the UK’s jurisdiction must be FCA-registered for anti-money laundering (AML).

The regulator has also been known to take robust action in the DeFi industry; in 2021, Binance was banned from operating in the UK as a result of multiple concerns, some of which related to its business structure and how consumers purchased its products.

Therefore, when comparing exchanges, it will be difficult to find an FCA-regulated and approved crypto-trade exchange. However, users should check whether the FCA or any other regulator has taken action against the exchange in the past.

Promotions

As crypto exchanges are typically unregulated in the UK, they have the freedom to offer bonuses that attract new traders. Coinbase has a promotion to earn up to £25 in crypto, in the hope that this will enable people to get into the crypto market.

Always check the terms and conditions of any promotions you intend to use. While using some exchanges, we have found some stringent “wagering requirements” that make rewards difficult to withdraw. These often take the form of a total trading volume, active days or profit levels.

Decentralised exchanges like PancakeSwap may also have promotions, such as token airdrops and exclusive NFTs.

Other Crypto Products

The best and most highly rated crypto exchanges in the UK go much further than the simple buying and selling of crypto. Many will also give access to staking, where users can invest cryptocurrency in a staking pool and earn a reward in the form of additional tokens if a transaction is successfully validated on the blockchain.

Although miners can earn rewards on a proof-of-work blockchain like Bitcoin, this requires sophisticated hardware and is energy-intensive, making it unsuitable for most amateur investors. On the other hand, proof-of-stake systems simply require users to partition some funds to be used within the blockchain system.

Other services to look out for on crypto exchanges are:

• Lending – a form of DeFi service, lending out funds to other traders can earn sizeable interest, although it does carry risk
• NFTs – some exchanges allow the swapping of and investing in NFTs, which are crypto assets that prove the authenticity of artwork or other artefacts
• Fan Tokens – some institutions like sporting clubs issue fan tokens that allow investors to engage more in the affairs of the club or company
• Borrowing – those looking to invest more in a particular coin may want to put a different crypto up as collateral and borrow the additional funds (interest will usually be charged for this)

Customer Support

The crypto market is a 24/7 world – its unregulated and decentralised nature means it never sleeps. The top-rated crypto exchanges, therefore, offer 24/7 customer support, so there is always someone on hand should you encounter an issue.

Bitfinex has such customer service in the form of online contact forms. Kraken, on the other hand, has a more extensive range of support options, including 24/7 live chat and phone support, as well as email.

Trust

Significant controversy has surrounded the industry and, although some crypto exchanges appear legitimate, their business model may be fundamentally flawed leading to bankruptcies. That being said, there are some basic checks that investors can undertake before depositing any money to identify the most trusted firms.

First, try and identify a physical address for the exchange. Those that do not have a public address displayed on their website and are essentially anonymous entities may be fake or could require more scrutiny. Also consider exchanges that publishes their proof of reserves.

Another useful tip is to search for a list of user reviews online. Although most major crypto exchanges will likely have some negative reviews, investors should look to see whether a pattern has developed of poor customer service or a sub-par investing experience.

Moreover, take a look at the registration process. If the registration process is too quick, there are little to no security questions or it goes without KYC requirements, this may indicate that the exchange is not secure for traders. When we have used popular crypto exchanges, our experts found that a more robust registration process may suggest that the platform is taking its responsibilities seriously. This goes the other way for those that do not require stringent checks or are a non-KYC exchange.

User Experience

The intuitiveness and simplicity of the platform are other important benefits. Some crypto exchanges are ranking higher in terms of how user-friendly they are compared to others. For example, Coinbase is known for its simple design and accessibility, making it a better choice for beginners.

Deposits and withdrawals should be easy to make, charts should be simple to read and searches for cryptocurrencies should be carried out with ease. Some exchanges also allow the use of APIs, so users can invest using bots and cryptocurrency algorithms.

Bottom Line On Crypto Exchanges

Now that cryptocurrency exchanges have been explained, it should be clear that they carry significant risks that investors must be aware of – their unregulated status and the volume of deposits they hold make them a prime target for cybercriminals, which alongside mismanagement, can lead to filings for bankruptcy and collapse. That being said, the majority of investing does take place through these crypto exchanges and some may feel able to accept that risk for the benefit of investing in cryptocurrencies with ease.

However, those more cautious may want to check out crypto brokers, which combine the legitimate and trustworthy nature of traditional online brokerages with access to popular digital assets.

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