Choosing the right exchange is an often difficult and time consuming process, but it’s entirely necessary if you want to get into trading or investing in cryptocurrencies. By volume, Binance is the biggest cryptocurrency exchange in the world and is likely the easiest to use for folks with a bit more pedigree. It offers over 40 different cryptocurrency options, with bitcoin being its biggest holding. You can use your credit card, or directly exchange bank notes, for cryptocurrency. Not bad.
But it’s definitely not without its problems.
They overcharge you for transactions—just like everyone else:
The 0.0005 BTC withdrawal fee is currently around 33 times higher than the average fee required to ensure transactions are mined on the next block. Binance’s process is called payment batching. They use it to actually reduce transaction frees to a minimum by getting as many outputs as possible into a single transaction. It’s effective, mostly, in that they cut their transaction fees by 80%.
Binance bundles transactions into these bunched payments, which allow them to pay bulk prices of approximately 0.01 BTC in transaction fees, or roughly $80 per transaction. Meanwhile, if your withdrawal is involved in one of these transactions, you still get charged 0.0005 BTC for each transaction. The exchange racks up 0.125 BTC worth approximately $1,000 in withdrawal fees for transactions that cost them $80 to execute.
This is Binance’s profit engine, and they could easily be generated over $20K a day in Bitcoin transaction fees alone. Let’s also point out that they have over 40 other coins to draw finances from, and we see why Binance is as big as it is.
Here’s coinbase’s transaction fees for comparison:
Coinbase charges a flat fee of $1.99 for purchases of cryptocurrencies between $25 and $50. It also charges 3.99% of the transaction amount for purchases made through credit card. Thus, if the user makes a credit card purchase for $25 worth of cryptocurrencies, the variable fee is $0.99 and the flat fee is $1.99. Because the flat fee is greater, Coinbase will charge $1.99 for the transaction. Such transactions can become expensive for users interested in transacting amounts greater than $300.
But compared to others, it’s favourable.
The specifics here are in the details. Naturally, you want to know what coins they offer (and if you’re into crypto-arbitrage—how those relative price flows match up with those of other exchanges) What country they’re based in. Can you shapeshift? And lastly, but definitely not least, how secure is it?
In our first article on cryptocurrency for our parent site, equity guru, we wrote about the two types of exchanges:
- Those that have been hacked
- Those that will be hacked.
And how it is absolutely imperative to take your cryptocurrency OFF the exchange to keep it safe when you’re done with your trading, put it somewhere safe and don’t talk about it.
This is why.
As of May 2019, Binance graduated from the second category to the first after hackers disappeared with 7,000 bitcoin, worth roughly $40 million, but also two-factor identification codes and API tokens. Binance also revealed that the hackers made sure to compromise high net worth accounts.
“The hackers had the patience to wait, and execute well-orchestrated actions through multiple seemingly independent accounts at the most opportune time. The transaction is structured in a way that passed our existing security checks,” said Binance CEO Changpeng Zhao.
The hackers used phishing scams and viruses which targeted the company’s hot wallet. Somebody in the company opened an e-mail which spread a trojan throughout their network, compromising their online holdings. Their cold wallet—stored offline—was untouched and Binance was able to cover the losses, which came out to %2 of their total holdings.
But the point remains: exchanges are not banks. If a bank is robbed, your money is insured by the federal government. If an exchange is robbed and your Bitcoin disappears into some unknown hot wallet, then you can wave goodbye to it.
Take it off the exchange if you’re not using it.
—Joseph Morton
