Bitstamp: A Look at the Oldest Active Exchange in the Industry

Credit: Photo by Shutterstock September 4, 2018 — 12:06 pm EDT

In this guide, we explore Bitstamp and its journey from humble beginnings seven years ago to becoming one of the most popular cryptocurrency exchanges in the world. We will also examine the various features of its platform, primarily trading and acquiring cryptocurrencies.

Summary

A Brief History of the World's Oldest Bitcoin Exchange

On August 22, 2018, Bitstamp celebrated its seventh year operating as one of the largest cryptocurrency exchanges in the world. This anniversary makes it the longest-running bitcoin exchange in a sector of the crypto-economy rife with hacks and scams. One of the most notable was one of Bitstamp's first competitors.

Founded by Nejc Kodrič and Damijan Merlak in August 2011, the company's first headquarters was a Slovene garage with just one server, a couple of laptops, and one thousand euros in capital.

Despite these humble beginnings, Bitstamp has grown to become one of the world's leading bitcoin exchanges, pioneering several security features and technical standards.

For example, Bitstamp was one of the first exchanges to implement multi-signature technology for its hot wallet. It also early adopted the Bitcoin soft fork for lower fees in 2017, and established one of the first insurance funds, secured in cold storage, to reimburse its customers in the event of a hack.

After recovering from a hack in January 2015, Bitstamp secured its status as a regulated exchange after obtaining a license from Luxembourg just over a year later. The license allows it to operate in any of the 28 EU countries due to the European Union's Single Market policy.

After obtaining its full license in July 2017, Bitstamp partnered with a reputable analytical and financial firm to provide its clients with BTC-USD and BTC-EUR trading pairs.

Security First

An excellent security feature of Bitstamp is that the warning to set up two-factor authentication is displayed both on the account balances page and when you first register. You should also reset your password on your first login.

Another encouraging aspect is that the internal processes of the exchange, which include IT infrastructure and data protection, are certified.

All customer data is protected by encryption for any uploaded documents, meaning that even if hackers access Bitstamp's servers, sensitive data is encrypted. Connections to their server are also encrypted, so make sure to look for the green lock in the URL tab of your browser when visiting the site.

After the 2015 hack, Bitstamp's hot wallets containing customer funds are now multi-signature, meaning an attacker would have to trick more than one employee with a phishing attack, as several staff members will need to sign with their key to validate transactions (the 2015 hack occurred after a phishing attack on just one of Bitstamp's employees).

Liquidity

Bitstamp is one of the largest exchanges in the market, so users can always buy and sell cryptocurrencies without issues and without dramatically pushing the price up or down due to slippage.

Most of the volume on Bitstamp, as expected, is directed towards bitcoin, with ether in second place, taking around 10 percent of the volume in recent days.

While wash trading and fake volume are valid concerns in the broader cryptocurrency exchange market, a report from the Blockchain Transparency Institute found that the reported volume of Bitstamp was closely aligned with the researchers' most accurate estimate of actual volume. Another update of the rankings is expected in September 2018.

Reputation

As the oldest exchange for bitcoin, Bitstamp has a fairly solid reputation. The fact that it is regulated as a payment institution in the EU also gives credibility to the exchange and, in case regulations tighten, Bitstamp should be well-positioned to overcome any difficulties.

In June 2014, Bitstamp was awarded Best Virtual Currency Startup at the Europas, surpassing the UK-based bitcoin exchange Coinfloor, the peer-to-peer market Localbitcoins, and the blockchain analysis firm Elliptic.

Fiat-to-Crypto

Bitstamp allows you to convert fiat, primarily EUR and USD, into the most popular cryptocurrencies and vice versa. All available cryptocurrencies are traded against BTC, EUR, and USD.

If you are located in the European Union, SEPA bank transfers should take between 24 hours and three business days. International bank transfers will be much slower, ranging from two to five business days. SEPA transfers are free; however, a small fee of 0.05 percent applies to international bank deposits.

The bank that handles fiat transactions for Bitstamp is Gorenjska, a Slovenian financial institution founded in 1955. Gorenjska operates in a wide range of operations, including banking and financial services for individuals and corporations, along with a presence in the safe deposit box rental market, insurance, real estate, and forex markets. As Slovenia is part of the EU Single Market, Gorenjska follows the same standards as German or French banks and is regulated similarly.

Bitstamp is one of the few major exchanges that does not rely on Tether. The debate over whether this stablecoin is genuinely backed by U.S. dollars or if it could be an elaborate scheme to manipulate the markets is a topic for another day.

By not relying on Tether or holding reserves of Tether, Bitstamp would survive in the (unlikely) event of a widespread market panic if Tether were to collapse.

Withdrawals in Gold

Cryptocurrency advocates and gold enthusiasts often overlap; however, there are some who believe that cryptocurrencies will render gold obsolete as a store of value. Others see both assets as complementary.

Bitstamp's gold withdrawal feature makes it truly unique. This feature was introduced in January 2016, with the precious metal sourced from the well-established company Moro. To withdraw gold, you must be a resident of the EU and have a USD balance in your account. The rate is fixed at the time of withdrawal, and customers can expect to receive their gold bars within two to five business days.

Trading Interface

The trading interface on Bitstamp is eye-catching and provides detailed information about the markets, such as the order book and market depth, and traders can apply technical indicators.

In combination with technical analysis, SMS price alerts can be a useful alternative to limit orders and market orders. For example, you might be waiting for a breakout above a particular level and want to assess the situation if the breakout occurs instead of buying or selling once that level is reached. By using SMS price alerts, we can set up these alerts at key resistances/supports and evaluate the situation as it unfolds before committing to a cryptocurrency purchase or sale.

Using the Bitstamp API function, advanced traders can set up trading bots to execute trades automatically. For example, Stefan van As created the Nefertiti bot in 2017, compatible with Bitstamp, as well as the open-source trading bot Gekko. If you master programming, you could even write your own trading bots using the available functions.

Fee Structure

Withdrawing crypto is free, unlike some exchanges like HitBTC that charge for deposits and withdrawals. Other reputable exchanges often charge for cryptocurrency withdrawals. As a crypto appreciates or depreciates, these withdrawal fees generally do not change in line with price changes.

The fees are also relatively low for bank transfers: €0.09 for SEPA transfers for those in Europe, basically the same as Kraken.

Depending on your accumulated 30-day volume, trading pair fees for buying or selling in the market start at 0.25 percent and decrease to 0.10 percent if your 30-day volume exceeds $20 million, again similar to Kraken.

Altcoin Support

Only bitcoin, bitcoin cash, litecoin, ripple, and ether are offered, which may be an indicator that Bitstamp is acting cautiously by not adding all the coins under the sun.

Bitstamp also stopped adding bitcoin fork coins such as bitcoin gold and bitcoin private, after adding bitcoin cash. Therefore, for altcoin traders, Bitstamp is likely not the right exchange, as many opportunities are not available. Other exchanges may better serve altcoin traders, with a greater variety and more potential profit opportunities.

KYC Verification Processes

The exchange has been working with Onfido, a KYC technology provider, since February 2018, to reduce and automate the time required for verification.

Unlike other exchanges, there is only one level of verification, so once you have submitted your documents, you will not need to do anything else, and you can expect the process to be completed within 48 hours. However, during the crypto frenzy towards the end of 2017, the verification time was delayed and the exchange temporarily halted new registrations.

Trading

With platforms like Kraken and others, users can leverage their positions to increase the potential gains from their trades. With Bitstamp, there is no margin trading.

While some advanced traders might miss this feature, the fact that there is no margin trading can be a slightly positive aspect for some who are not used to making such risky trades, and beginner/amateur traders may want to practice on Bitstamp using market/limit orders to buy/sell cryptos before trading with leverage.

Market and instant orders buy/sell immediately at the best available price, and they only differ in that you can determine the amount you wish to purchase with market orders. Limit orders allow you to set a level, or “limit,” at which you want to enter and exit a trade, and it is executed automatically once the market reaches the limit. Finally, stop orders allow you to limit your losses in case the market moves against you after buying or selling, or if you want to set up a trade to execute a buy/sell on a breakout.

Verdict

In general, Bitstamp is a solid bitcoin exchange, ideal for European citizens. Despite not having margin trading, Bitstamp is a good option for acquiring cryptocurrencies due to its reputation, free crypto withdrawals, and competitive fees. The ability to withdraw in gold is also a useful feature for those cryptocurrency investors who have not yet diversified into precious metals.

Margin trading and the addition of some more altcoins that have real-world utility could make this exchange even more potential for gaining market share. Similarly, the addition of a decentralized exchange, where cryptocurrency projects list their own crypto assets autonomously, similar to others, could be used as a preliminary stage before adding new cryptocurrencies to the main exchange.