Cryptocurrency exchanges can be daunting, confusing, and even risky. The standard exchange format requires that you first make an account, pass an identity verification (in many cases), deposit cryptocurrency, make your trades, and then ideally withdraw.

When you deposit and withdraw, you pay fees each time. The exchange itself also incurs a fee. Even worse, exchanges are famous for getting hacked, so your assets could potentially be at risk. In response to this, a cryptocurrency exchange called ShapeShift appeared a few years back and offers a paradigm that we now call instant exchanges.

Today, we’re going to look into ShapeShift, see what it’s all about, and how it compares to its modern-day competitors.

How ShapeShift works

ShapeShift takes a different business model than other exchanges. It uses and account-free model where anyone can anonymously create a transaction to exchange from one cryptocurrency to another. The process is entirely automated.

Completed Shapeshift Exchange
A completed ShapeShift exchange

Let’s say, for example, that you want to exchange some Litecoin for some Ethereum. You open the ShapeShift website, choose your desired cryptocurrencies, and choose if you want to exchange a specific amount or a non-specific amount.

The difference here depends on how picky you are. If you want to know exactly how much Ethereum you will receive in exchange for your Litecoin, you’ll want to do a “precise” exchange as ShapeShift calls it.

Once you enter the amount that you will deposit, ShapeShift will tell you immediately how much you will receive. If you use the “quick” method, then you will instead simply be presented with a deposit address, and ShapeShift will send you whatever the equivalent Ethereum is, minus their own fees.

The advantage of using the quick method is that you can create a reusable deposit address. Let’s say for example that you have an employer that pays you in Litecoin but you want Ethereum. Instead of needing to exchange it every time, you could create a reusable Litecoin deposit address.

Each time your employer pays to that address, what’s really happening is they are paying ShapeShift. ShapeShift will then send you the current up-to-date exchange rate for Ethereum.

ShapeShift’s “built-in” program

A few cryptocurrency wallets now support ShapeShift exchanges from within the program. This is because ShapeShift offers an API that allows for wallet developers to include ShapeShift service directly within their wallets. Two examples of this include Exodus and Jaxx. It should be noted, however, that Exodus takes a small cut of every exchange that is done within their wallet. This is how Exodus funds its development.

Wallets that offer ShapeShift services may not necessarily offer all the trading pairs that ShapeShift has. This is because not all wallets will support all assets. Today, ShapeShift supports a fairly wide number of assets, but certainly not all assets that are available in the markets today. For example, ShapeShift does not support PIVX or FunFair (anymore), to name a few.

How does ShapeShift compare to the competition?

There are now several alternatives to ShapeShift that offer similar instant exchange services. Each one supports different cryptocurrency assets, and they typically have different exchange rates.

We wanted to do a simple test to demonstrate how ShapeShift exchange rate differs from its competitors. We did an example of 1 ETH to LTC.

ShapeShift – 3.81126679 LTC

Cost of ShapeShift Transaction

Flyp.Me – 3.82058803 LTC

Cost of Transaction – 3.7977472764 LTC

Cost of ChangeNow Transaction – 3.781 LTC

Cost of Changelly Transaction

As you can see, ShapeShift is largely in line with its competition, with Flyp.Me offering just slightly more for this particular pairing, and at this particular time. It should be noted as well that we took these screenshots within a five-minute window.

You can buy bitcoin with a credit card, but you probably shouldn’t

Recently, ShapeShift started offering a service where users can purchase bitcoin with a credit card. This puts them in direct competition with other major blockchain players such as Coinbase.

However, once you enter your details, you are faced with a screen that shows that the transaction includes a crushingly large fee of 12.5% (if buying $100 worth of crypto). If buying a similar amount of bitcoin on Coinbase, one would expect to pay almost half of that fee.

Credit Card Transaction Shapeshift

However, Coinbase requires that you create an account and upload identification documents. ShapeShift does not have that requirement. To some people, this could be an important distinction. If, however, like most people, you want to pay the lowest possible fees, then ShapeShift with a credit card is probably not for you.

Is ShapeShift a good exchange?

ShapeShift is not perfect for everyone. This is because exchange fees on an instant exchange are going to be higher than on a traditional one. This is especially true if you’re a high-volume trader. Most traditional exchanges offer lower fees for those that meet certain minimum activity requirements.

On the other hand, if you are a casual trader or one that makes no more than one or two exchanges a week, then an instant exchange services like ShapeShift could be perfect.

Just make sure to shop around at other sites to see if you can get a better rate, as rates could be different each day depending on market conditions.

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Posted by Robert DeVoe