What there is to know about exchanges

In South Africa, Luno, a crypto exchange, allows customers to buy and sell bitcoin based on the current market price. Luno does not set the price; it only facilitates the transaction and charges a fee for its service — the middleman or third party in the transaction.

This is just one type of exchange, says Sonya Kuhnel, the managing director of the Blockchain Academy.

“Another type is an exchange that acts as a broker and allows customers to buy and sell cryptocurrencies at a price set by them, usually at a small premium above the current market price.”

In South Africa, coinBR and the well-known exchange in the United States, Coinbase, provide this kind of service.

Another type of exchange is LocalBitcoins.com, which facilitates over-the-counter trading of local currency for bitcoin and allows users to buy and sell cryptocurrencies directly from and to each other. The seller sets the price and the site matches the seller with a buyer.

“When choosing a cryptocurrency exchange, make sure you have done your research by reading comments on forums and reading the reviews about the exchange. Choose an exchange that follows know-your-customer and antimoney laundering procedures, as these policies can reduce the risk of illegal or fraudulent activity by certifying customers’ identity,” Kuhnel says.

“Ensure that at least 95% of the exchange’s assets are kept offline or in cold storage.

“Exchanges with higher cryptocurrency volumes also reflect the prices of the cryptocurrencies more accurately as they are processing more transactions per hour.”