At first, buying or selling bitcoins online seems a daunting task. But is not. Often, it’s like using PayPal or any other online payment system. Switch to an exchange of bitcoins and have a happy moment next to your pockets with the currency of your choice.
Warning: Entrusting your money in an exchange can be dangerous. Reckless exchanges have lost bitcoins from customers in the past. Be careful. Proceed only if you understand that this can happen.
Using a Bitcoin Exchange
The exchanges connect bitcoin buyers with sellers, offering an easy way for users to buy or sell bitcoin without meeting another person who wants to exchange the exact amount of bitcoin. The definition of exchange is a bit murky. For example, with some services, buying and selling bitcoins is the only objective. Other services are integrated platforms, combined with Bitcoin wallets and other features that users can use. For the purposes of this guide, exchanges are defined as any service that allows you to buy and sell bitcoin in your payment service, whether it is the only service that provides or not.
Before moving on, you must set up a wallet, so you have a place to put your bitcoins.
Navigating in online exchanges is usually quite easy. For most exchanges, you must connect to a bank account, which can take a couple of days (Coinbase offers instant verification if you sign in with your bank user name). In general, the sites, such as Changelly shown below, will show the “buy” or “sell” links. Enter the amount of bitcoins you want to buy or sell. Click on a button that indicates the will to complete the transaction. Then you are ready to go.
The drawback of these virtual exchanges is that depositing and withdrawing bitcoins in fiat (USD, Euro or similar) is a slow process. Generally, it takes between 2 and 5 days before receiving the refund in your bank account, the same when you send funds to deposit in a Bitcoin exchange. Negotiating them in person is instant (check out Changelly.com). But the convenience of buying and selling online without the hassle of setting up a meeting with another person is one of the reasons why online exchanges like Changelly and Coinbase are so popular.
Exchanges usually charge a commercial commission below 1%.
Know the laws of your customers and other Bitcoin regulations
Bitcoin exchanges must comply with state regulations. To comply with these regulations, customers are asked to verify their identity in order to participate. Regulations vary by country, but exchanges generally must comply with the Know Your Customer (KYC) and Anti-Money Laundering (AML) laws.
Because of this, exchanges often do not provide as much privacy or anonymity as many Bitcoin enthusiasts.
The current state of Bitcoin exchanges
The Bitcoin exchanges are not exactly short in supply. More and more appear to enter the fray or improve in different aspects of the exchange status quo. The established quality exchanges that have accumulated confidence are smaller in number.
They are described within some trusted and long-standing places to buy and sell bitcoins in USD. Changelly and BTC-e have established themselves as the dominant exchanges. Changelly is probably the most reliable, while BTC-e is more mysterious. Owners still have to reveal their identities, no one is sure where they are, and the website shows scrolls of Cyrillic text. A more complete list of exchanges can be found here.
Exchanges in non-US countries are also numerous. But the availability of exchanges depends on the country and the desired currency. Most exchanges do not admit more than a couple of coins. Again, take a look at this list to get a full view: it shows what currencies each exchange supports.
Both China and Russia have adopted a tough stance against the currency in the past. With uncertain regulations, it is a bit more complicated to evaluate whether or not it is a safe idea to use companies based in regions that are less Bitcoin friendly.
Mount Gox, once the dominant bitcoin exchange, failed and drowned in early 2014. After an alleged hacking, the old exchange king lost many bitcoins. This is one reason why some people prefer to buy and sell Bitcoin in person and use free-trade exchanges like Changelly.
That said, after Mt. Many Gox exchanges have gone the extra mile to offer transparency and prove the security of bitcoin. Third-party audits have been fashionable. Now it is expected that the Bitcoin exchanges provide more evidence that they are carefully taking care of the bitcoin that their clients are entrusting to them.
Exchanges like Kraken and Bitfinex quickly passed the post-Gox solvency test, which is a demonstration that the exchanges contain all the funds they claim to have. Bitstamp passed a test conducted by Bitcoin’s main developer, Mike Hearn.
It is a first step. In a certain sense, the exchanges are being regulated to gain the trust of the clients. But this does not amount to a full financial audit, which should take weeks.
Future Bitcoin exchanges and “Payment Platforms” to search
Circle emerged recently nailed on a mission to bring the bitcoin to the masses. Its goal is to provide an easy-to-use product that is not riddled with volatility, offers insurance and is free to use. Created as a pseudo bank for Bitcoin, it allows people to store and exchange Bitcoin. Currently it is only invitation, but will expand its audience.
BitReserve, the brainchild of CNET founder Halsey Minor, has another goal in mind: to put an end to Bitcoin’s volatility. That is a difficult task. Currently, it is in beta. But once it is opened, it will allow the conversion to and from five currencies: dollars, euros, pounds, yen and yuan.
It is also worth mentioning a scant but convincing trend towards decentralized exchanges. Coinffeine aims to develop a peer-to-peer platform exchange, which requires little or no trust in a centralized exchange. This tool would also give customers much more control over their bitcoin, although it may be more risky in other ways. Easy to use? For better or for worse, at least developers want it to be an option for consumers.
Trading bitcoins in person is another option. LocalBitcoin is a dominant player in this area. The use of each bitcoin trading method has its pros and cons. Stay updated on the latest Bitcoin exchange news here.