Pedestrians look at monitors showing the prices of virtual currencies at the Bithumb exchange office in Seoul, South Korea, Feb. 2, 2018. SeongJoon Cho | Bloomberg | Getty Images

During the bitcoin frenzy at the end of December, Coinbase, one of the premier exchanges, halted trading briefly due to crushing volume as prices plunged. Many of Coinbase's competitors also have suffered growing pains as digital money grows ever more popular, overwhelming systems and encouraging formation of new exchanges that have yet to stand the test of time. And there have been hacks, too. A cryptocurrency exchange in Japan, called Coincheck, is under government scrutiny after hackers stole $530 million from its users in January. If confirmed, it's expected to rank as the biggest such theft on record, eclipsing the estimated $450 million in bitcoin stolen from the Japanese exchange Mt. Gox in 2014. Experienced bitcoin traders recognize that snafus come with the territory in a new and lightly regulated $700 billion market growing so rapidly it's hard to ramp up fast enough. Major bitcoin and cryptocurrency exchanges are springing up globally, including Coinbase and Binance in Japan, Bittrex and Kaken in the United States and Bitfinex in Hong Kong. And the absence of government interference is in fact a big part of the cryptocurrency appeal, though the Securities and Exchange Commission and the Commodity Futures Trading Commission said recently they would welcome new powers from Congress to protect consumers from problems on cryptocurrency exchanges. More from Global Investing Hot Spots:

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Where Bill Gross is investing his money Investors more familiar with the stock market, which has layer upon layer of protections refined over more than a century, may wonder: What good is an exchange, or "trading platform," if it cannot fill orders when its customers want to the most? How do you know if the platform you choose is secure? What features should the tenderfoot trader look for? Dr. Bora Ozkan, assistant professor of finance at Temple University's Fox School of Business, an expert in capital markets, says that blockchain, the technology at the heart of bitcoin and similar currencies, is quite secure due to its decentralization, but that an individual exchange's systems for storing customer records and funds may be less safe because centralization on a few servers makes them easy hacking targets. "If cryptocurrency exchanges can figure out an efficient and swift way to operate decentralized exchanges — let's say, like blockchain — they can operate more securely," Ozkan said. While such systems are in the works, experts say investors should do their own due diligence for now. "Investors should evaluate exchanges and the companies that run them as they would any other institution that they would trust to secure their money, such as banks," said Richard Hendrix, cryptocurrency analyst at Real Ventures, a Montreal-based venture capital firm involved in this market.

"How long have they been operating?" he asked. "Are they insured? Who runs them? What is their reputation in the market?" The biggest exchanges may be the best, he said, because they get enough orders to easily match buyers and sellers and have economies of scale to keep down fees. Many insiders warn against using exchanges based in obscure corners of the world where consumer protections are weak, preferring those operating from the United States and Europe, where there are at least some regulation and consumer protection and it's often easier to link well-protected banking services to the exchange. Remember, if you choose an overseas exchange, you may have to wire money if you want to buy. Some banks may reject the transfer even if you are dealing with a licensed and reliable exchange. Experts says customers should seek an exchange that suits their individual needs. Some, for example, serve sophisticated investors with easy systems for limit and stop-limit orders, while others are meant to serve ordinary investors who place market orders. Some restrict beginner account size to a small dollar amount and require the user to apply for a higher limit, much as one would seek approval for a margin account at a brokerage. Insiders say any good system will offer safeguards against money laundering, procedures for knowing who its customers are, a cellphone app for trading and price tracking, and a quick and easy way to move cash between an outside bank account and the site's "wallet," which stores cryptocurrency and regular money.



"What sets apart a mediocre exchange and a good exchange is liquidity," Ozkan said, referring to the ability to find enough sellers and buyers to execute trades quickly. Beyond these universal must-haves are some key considerations concerning ease of use and security. Reliability. Will the platform operate smoothly when trading volume is very high or the currency's price is whipsawing? Experts say users should scour the internet and site itself for records of system crashes and trading halts. "Given the poor regulatory environment, I think that Twitter and Reddit are really the only options to evaluate an exchange's reputation," said John Quinn, co-founder and chief revenue officer of Storj Labs, a cloud storage service that uses blockchain.

The biggest concern for any investor on a cryptocurrency exchange is the likelihood of fraud or hacks due to poor security or a lack of investor protections. Patrick Gray founder and CEO of HashChain Technology