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.
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.