Cryptos: Exchanges, Coins, Keys and Fees

Recently, Coinbase, a crypto currency exchange, was listed on the Nasdaq with a valuation of $60bln. And most of us had not really heard of it before. So what is it?

Coinbase is an exchange – a marketplace - where you can buy and sell cryptocurrencies, from the most famous cryptos like Bitcoin and Ethereum to more obscure ones like Bancor Network Token and Storj (don’t tell me you have heard of them :).

Exchanges

There are several crypto exchanges, the largest of which - by trading volume – is Binance, trading about $36bln per day on average. A website called coinmarketcap ranks the crypto exchanges on a daily basis, measuring trading volume, liquidity and weekly visits, which reflect the overall quality of the exchanges. Binance holds the top spot, followed by CoinbasePro, Kraken and KuCoin, with quite a few other exchanges following from there.

Coins in numbers

In total there are about 4,900 cryptos in existence. There are many really strange and unknown ones amongst these. If you want to buy some more obscure cryptos like Rarible or Grin, for example, you have to choose an exchange that deals in them. So, an important factor in choosing an exchange is the number of different cryptos you can buy and sell on it. On Binance, the top exchange today, you can trade around 360 cryptos, while Coinbase offers trades in only 58 cryptos. Currently the exchange which offers the most cryptos to trade is Gate.io, based in the US.

Coins: Big versus small

Only the first 100 cryptos today have a total market value of $1bln and above. All the smaller and more eccentric ones are normally best avoided, as they can disappear without a trace. But adventurous traders may hope to find a diamond in the rough. Dogecoin, for example, often quoted by Elon Musk, was worth (only) $370mln two years ago and now it has reached a staggering $52bln capitalisation.

Keys and security

When choosing an exchange, you should certainly take into account how secure your money is. After all, cryptos are just computer files and could be erased or hacked. When buying cryptos, you will be given a crypto wallet, holdingtwo keys: a public one, like a bank account number, that can be disclosed; and a private one, that must be used to validate your transactions, proving you are the owner of the wallet.

In 2018 the Japanese exchange Coincheck was hacked and the equivalent of $530mln of a crypto called NEM was stolen from multiple client accounts. This is so far the largest theft of cryptos ever. Although some of the coins were recovered, those behind the hack were never found. Exchanges are not always amenable to helping you find lost coins; this is why the reputation and security of the exchange have to be very high on your list.

How to hold your ‘keys’

There are two ways of holding your keys. Your wallet can provide hot storage, meaning it is held as liquidity on the exchange (like banks hold cash), or cold storage, i.e offline, like a bank moving money into a vault. Hot storage is more convenient as your cryptos can be easily traded and moved for payments, but this is also technically how you are most exposed to hacking. However, the best exchanges spend a lot of money on security, just like banks and credit cards providers do, and tend to be quite safe, even if you select hot storage.