Buying Bitcoin: Pros and Cons of Exchanges

... And Why I Use Bisq

When I first learned about bitcoin and realized its potential, the only thing I could think about was how I could get my hands on some. After many hours of research, I learned there were several ways I could go about acquiring some. The four ways that intrigued me the most were: centralized exchanges, decentralized exchanges, mining, and earning. Mining and earning bitcoin are fascinating topics of discussion in and of themselves, however today I would like to focus on centralized and decentralized exchanges. For a stripped-down explanation of centralized versus decentralized, you can read my previous post on decentralization. In the context of exchanges, centralized versus decentralized entails a slew of differences that shape how one participates in the bitcoin economy.

Centralized and Decentralized Exchanges

What is a Centralized Exchange

A centralized exchange is where one can purchase cryptocurrency from a single entity. Examples of centralized exchanges include Coinbase, Kraken, Bull Bitcoin, and Swan Bitcoin. These exchanges require you to connect your bank account to their service as well as disclose personal identification material such as pictures of your drivers license or passport. These exchanges are required to collect this personal information under Know Your Customer (KYC) rules. There are many benefits to using a centralized exchange. The biggest advantage to using a centralized exchange is the ability to daily cost average (DCA) your bitcoin purchases. DCA is when you purchase a certain amount of bitcoin at regular intervals, regardless of the price. The benefit of DCA is two-fold. For one, you can have a “set it and forget it” approach to accumulation that is beneficial for the average individual. The second benefit is that by purchasing bitcoin periodically over time, your average purchase price balances out in your favour versus trying to play the market. Another big benefit of using a centralized exchange is the support services that centralized entities can provide like account recovery and fraud protection. With all that being said, there are differences between centralized exchanges. I will say off the top, I believe no one should use Coinbase. Beyond their encouragement of trading and purchasing almost any and every altcoin out there, their extremely poor track record of advocating for and protecting consumers from invasive data collection is unacceptable. Two centralized exchanges I hold in high regard are Bull Bitcoin in Canada, and Swan Bitcoin in the United States. One of the primary reasons I hold these two exchanges in high regard is that they provide services exclusively in bitcoin. By ignoring the dangerous allure of altcoins, they’ve kept their focus on their customers. Both exchanges encourage bitcoin self-custody, with Bull Bitcoin going so far as to require customers purchase bitcoin directly into their own wallets off the exchange. With an exclusive focus on bitcoin, both Bull Bitcoin and Swan Bitcoin inherently encourage saving, a fundamental tenant of bitcoin philosophy. They do all these things while also providing the aforementioned DCA and support functionality.

What is a Decentralized Exchange

I believe decentralized exchanges are the best places to purchase bitcoin. A decentralized exchange differs most from a centralized exchange in its structure. Where a centralized exchange is a single entity that controls the exchange of fiat currency for bitcoin, a decentralized exchange is no such thing. Instead, a decentralized exchange operates through nodes operated by individuals unassociated with any central entity. The exchange I recommend first and foremost when anyone asks me where to purchase bitcoin is Bisq. As a decentralized exchange, there is no Bisq company. Bisq is simply a piece of software anyone can run on their computer giving them access to a network of individuals where they can exchange fiat currency for bitcoin or vice-versa. With Bisq, you are not purchasing bitcoin from the exchange. Instead, you are purchasing bitcoin from another individual. This peer-to-peer exchange is what I consider the best way to purchase bitcoin for this one reason: no KYC. Limiting how much personal information you hand over to third parties is among the most important steps one can take to reclaim even a fraction of one’s financial privacy. While Bisq does not provide you with “set it and forget it” DCA functionality, you can still manually DCA if you so choose. Regarding fraud protection, Bisq mitigates that risk through account signing procedures, multi-signature security deposits, and arbitration.

Let Bitcoin Be Bitcoin

I believe financial privacy is a severely underlooked and underappreciated right we all possess. While commerce and trade is made easier and seamless with digital cash, the cost to our privacy is grave. As I discuss in my post on decentralization, where there is a middleman, there is a vulnerability. Bitcoin inherently removes that vulnerability by allowing parties to transact without the need for a middleman. Decentralized exchanges allow us to acquire bitcoin in the same manner. Why introduce a middleman into something purpose-built to reject it? I believe allowing centralized exchanges to become the de facto middleman presents a grave threat to the bitcoin economy. If we do not reject the harmful incursion of financial surveillance in bitcoin, we risk losing one of its most valuable traits for good.

Using Bisq Bisq can appear rather intimidating at first glance but is really quite straightforward. Below you will find great guides that will provide you with everything you need to know to get started: