Even though cryptocurrency, ICOs, and tokens are something that most of us are probably already used to, crypto exchanges are different — in the eyes of the majority, it’s an instrument only for traders, not actual crypto users who hold some tokens in their wallets awaiting to use them as a form payment on future platforms. However, as the market is maturing and the number of tokens is growing, more and more of them are spreading among crypto lovers, and the question arises: How can the average user switch between tokens with ease? Crypto exchanges are likely to be the answer.
Tokens usage is inevitable, and here’s why
Discounts for tokens and discount tokens
Imagine the situation where you can either pay full price for a purchase with your credit card or get a 20% discount in case you decide to pay with cash instead. Although it probably depends on the size of the purchase, the second option seems to be more appealing, right? Now imagine that you make these kind of purchases regularly — obviously, cash becomes your only choice.
Well, this same logic applies to tokens. Projects may offer discounts for using their own tokens in order to stimulate the demand for them and appreciate its value respectively.
- A good example of this situation is BOLT, a platform and token that provides cheap mobile video content to the emerging markets. Although users are able to pay in other currencies, including fiat, customers who choose to pay for fees in tokens receive significant discounts — 50% during the first year, two times less during the second, and four times less in the third. The company is also planning to use 20% of its profits to buy back BOLT tokens every quarter until 400 million of them are withdrawn.
- Nexo, a platform that provides instant crypto-backed loans, is another good example. The borrowers who choose to repay interest in NEXO tokens will receive a 50% discount on their payments. And that’s not the only advantage: users who stake tokens in Nexo wallets are entitled to dividends — the company distributes 30% of its profits to token holders for assets ownership.
Discount tokens — those that are not burnt by the network when used but instead remain in the possession of the holders — are also gaining popularity. As Alex Felix, CoinFund’s partner, explains, “… token holders are entitled to a perpetual discount on services but structured in a way that the discount is mathematically equivalent to a revenue or fee royalty but only if you utilize the services.”
With more and more projects offering better deals for their tokens, it becomes clear that sooner or later you’ll want to have one.
There is no such thing as a free lunch in this world, however, in crypto world, there kind of is. Blockchain companies sometimes carry out airdrops, meaning they distribute tokens to the wallets of users who already hold some crypto (e.g. Bitcoin or Ethereum), all of which is free of charge to the end user. Although these are usually utilized by startups to attract attention to the project and get initial users to the platform, crypto exchanges, as well as blockchain enterprises, sometimes do the same thing for marketing purposes — to reward loyal customers or generate a leads database.
Airdrops allow companies to raise popularity in a highly competitive space and make token holders educate themselves about the project while trying to figure out what to do with the new stake. As Shaurya Malwa, a blockchain analyst and enthusiast, says, “For a quick retrospect, Bitcoin and Ethereum have millions of users. An airdrop effectively puts your token in the hands of millions. Even if only 1% of users actually engage your project, you’ve likely achieved significantly broader distribution and more engagement than even the most successful token sales.”
Tokens acquired through airdrops can be held in the wallets and used for later payments. They can also be sold on an exchange once they appreciate in value.
The loyalty program market is a huge one, with about 48 million points waiting in member accounts worldwide that have a perceived total value of $360 billion. Still, studies show that the rewards from these programs are not valuable enough for millennials, which is the main reason why they quit. The monetary value of the points is usually lower than normal, taking into account all the restrictions regarding how you can use these points. Traditional loyalty programs lack liquidity.
And that’s where the blockchain enters the game. As Aaron Wiseman from Sendy says, “Liquidity gives loyalty points super powers. Creating a token for a businesses allows their members to trade with each other, trade with other businesses, and even redeem their loyalty points for cash. It also provides an open protocol for businesses to collaborate in a trustless manner.”
Companies are already starting to recognize the potential behind tokens for loyalty programs. Singapore Airlines, for example, launched its blockchain-based loyalty program for regular customers. Budget airline AirAsia confirmed that it’s going to turn its frequent flyer points into BigCoin, a new cryptocurrency. Cathay Pacific Group has also joined the list by announcing their new blockchain-based rewards program. And it’s not only about airlines — for instance, EZ Rent-A-Car offers its customers to turn their loyalty program points into digital currency.
What does all this have to do with crypto exchanges?
With all the advantages offered to token holders, it becomes clear that one day you’ll have to buy or sell particular tokens or exchange yours for others in order to reap all the benefits they give. So what are your options?
- Find buyers/sellers directly online — Obviously, no one can forbid you to trade with someone directly, sending tokens from wallet to wallet. The disadvantages of this option, however, are clear — finding someone willing to sell or buy exactly those tokens you are interested in is difficult, if not impossible. In addition, pricing becomes an issue as the exchange rate has to be determined by the users themselves.
- 0x Protocol and Metamask — 0x Protocol is an open source protocol for exchanging ERC20 tokens, while Metamask is an extension for accessing Ethereum-enabled distributed applications from the browser. The combination of these two products creates a safe, decentralized method to trade tokens on Ethereum. Though it’s a promising solution that’s quite easy to use, it’s still new to the market and its development is still in progress. It’s obvious limitation is that only ERC20 tokens can be sent this way.
- Exchanges — Currently, crypto exchanges are the easiest way for crypto holders to sell or buy tokens. Centralized exchanges create a huge pool of liquidity for customers and allow to exchange fiat for crypto using various payment methods. They also eliminate some of the individual risks that are widespread in the crypto world. As David Petersson, a developer and tech blogger, explains, “Since all addresses are hash-codes and numbers, people sometimes send money to the wrong address. And since there is no bank involved, the transaction is irreversible.” However, David continues by saying, “Exchanges can help users to recover such losses” — just as ABCC did, according to CEO Calvin Cheng.
So, crypto exchanges are here not for traders only, but for token holders who simply want to use tokens to pay for products and services and benefit from the discounts. How to choose a crypto exchange for yourself?
What does the ideal crypto exchange for beginners look like?
Crypto exchanges differ depending on their purpose. If you’re interested in trading, you’ll likely need to find an exchange with advanced trading tools. However, for beginners who just need an exchange for a particular trade, the requirements can be different. So, what are the features of the ideal crypto exchange for newcomers?
- Liquid — Currently, 99% of cryptocurrency trades happen on centralized exchanges. The rest is left to decentralized ones. They reduce the risk of hacks and thefts, as their nodes are distributed, and they also provide anonymity to users that centralized exchanges typically lack. However, the liquidity is very low on such exchanges as of now — and the likely reasons are higher validation time, lack of cryptocurrency supply, and the relative complexity for beginners. Centralized ones, on the other hand, offer much more liquidity to their users and can be a better choice for beginners who simply want to exchange tokens quickly and painlessly.
- Secure — Today, there are over 200 crypto exchanges on the market, and this number is constantly growing. Such a high demand for digital currency results in raising interest from hackers — according to an ICO Rating report, 31 crypto exchanges were hacked during the past eight years with $1.3 billion stolen from their users. The report shows that out of 100 crypto exchanges, only 46% provide full user account security to their investors, and just 4% use the majority of best practices to eliminate the risks connected with domain and registrar vulnerabilities.
Although no one is fully protected from losing their assets, risks can be reduced if you follow simple safety instructions and choose a reliable crypto exchange that have had no cyber attacks in the past.
- User friendly and easy to use — The complexity of blockchain solutions can be overwhelming for investors — and crypto exchanges should not make the technology more confusing for newcomers. The user interface is especially important for beginners — easy registration, clear navigation, and a simple gateway are a must. The ability to transfer funds to exchange easily is also an advantage — some of the exchanges are integrated with wallets, which makes them a good choice for investors.
Payment methods also matter — as Shefali Deshwali, a researcher at Techracers and blockchain enthusiast, says, “You should choose a platform that offers you multiple options for payment purposes rather than the ones having a single mode.”
- Variety of cryptocurrencies supported — Although this factor may be less significant than security, cryptocurrency supply is important for investors willing to sell or buy tokens on the exchange. The exchange may support fiat currencies, however, in case the choice of crypto is limited, users will have to switch to another service to get a deal with specific tokens. For those investors who are not interested in regular trading, but rather want to close a single deal, moving from one exchange to another is a waste of time.
From theory to practice — what exchanges satisfy the criteria?
In the list below we feature the top 3 exchanges that, in our opinion, fit the criteria described and will be a good choice for crypto users.
Coinbase is one of the most trusted cryptocurrency exchange platforms to date, and it has never been hacked (Coinbase Pro is the safest exchange according to ICO Rating research). Over $150 billion were traded on the platform by over 20 million users, according to the company’s website. The exchange is a good choice for newcomers, as it’s easy to use and supports fiat — you can buy crypto using your bank account, credit card, PayPal, or other payment methods. Unfortunately, Coinbase supports eight cryptocurrencies and has geographic limitations — it’s only available in 33 countries.
EXMO, founded in 2013, is among the oldest exchanges on the market. The company has over 1.5 million users and supports over 30 cryptocurrencies and several fiat currencies in 12 languages. The platform is security-oriented, as it has 2FA (2-factor authentication) and allows users to choose trusted IP addresses only for authorization purposes. The exchange stores most of its funds in cold wallets, which eliminates the risk of losing money in case a cyber attack is successful. Security is not the only feature of EXMO that makes it a good choice for investors — the service has an intuitive user interface and is very easy to navigate, so buying and selling tokens is quick and easy, even for the non-tech savvy people.
Binance is another reputable exchange that is suitable for both beginners and advanced users. The service currently supports almost 150 tokens and coins in 14 languages. The platform allows users to easily switch between two user interfaces — basic or advanced — which makes it very user friendly and easy to use. Just as EXMO, this exchange supports 2FA and is considered to be secure. You can register and trade immediately, however, you must provide photo ID in case you want to withdraw more than 2 BTC per day.
While this list is far from being complete, as the universe of crypto exchanges is impressively large, some of the leading exchanges that would be helpful for beginners are presented here for your attention. We expect more crypto exchanges to focus on their security and user interface in the future, as market tokenization becomes a new reality and investors start to exchange their tokens to get the most out of their money.
Disclaimer: The information in this article should not be interpreted as investment advice. Further research needs to be done BEFORE starting to use any of the exchanges featured in this material.