Last Updated On December 26th, 2019
In the realm of cryptocurrency exchanges, there are serious arguments about the best form for investors. Today’s Shapeshift review will take a look at an attempt to run a crypto-to-crypto exchange with all the speed and responsiveness of a centralized exchange.
We’ll try to answer questions like:
- Is Shapeshift Safe?
- How does Shapeshift Work?
- What effects will Shapeshift’s recent changes have?
This Shapeshift review will cover its features and history. We will also give a brief overview of the major changes taking place there. This will also provide a look at its fees, funding methods, ease of use, security precautions, as well as account creation and verification requirements.
Shapeshift was founded in August of 2014 as a crypto-to-crypto exchange. It was designed to provide an instantaneous way for users to buy and sell different cryptocurrencies while preserving anonymity. Unlike many other exchanges currently on the market, it was started using traditional venture capital from sources such as FundersClub, Pantera, and Lake Star. Its headquarters is in Switzerland, though the majority of operations are carried out in the U.S.
Erik Voorhees is the founder and current CEO. He has extensive experience in the cryptocurrency space and founded or held high-level positions in several other significant blockchain startups. Shapeshift stood out from most others by not requiring users to create a trading account and charging zero transaction fee. As it stands now, it is on the smaller side for cryptocurrency exchanges. Its own website shows that it processes just over 200 BTC per 24-hour period. This is a drop in the bucket compared to big ones like Binance or Bitstamp.
Shapeshift announced a major shift in September of 2018, agreeing to comply with U.S. AML and KYC regulations going forward. As of November 2018, all of its users will be required to create an account and verify their identity. This is a significant change for the formerly privacy-minded exchange and it’s unclear how this will affect its popularity going forward.
Sign up & Identification
When it was first created, it didn’t require users to create an account or provide any information for trading. All you needed to do was provide the payment wallet address and the address of the receiving wallet. Once this was done and you confirmed the transaction, a purchase would be completed.
Shapeshift now requires all users to join their membership program before making any trades. It is described as a five-tier system with progressively greater benefits as you climb the ranks. As it stands now, tier 1 is the only level any information has been provided for.
Users achieve tier 1 simply by signing up and completing the identity verification requirement. It allows you to trade cryptocurrency up to an equivalent 24-hour total of $10,000.
Deposit & Withdrawal Methods
It doesn’t itself offer fiat trading but it has partnered with Simplex to allow credit card purchases of Bitcoin. This lets you quickly purchase Bitcoin and use it to execute Shapeshift assisted crypto trades like Bitcoin to Ethereum, Bitcoin to Dogecoin and the like.
It works as an instant cryptocurrency exchange. Instead of storing your funds on its platform, you use your existing wallet address to fund a single transaction. Once Shapeshift confirms receipt of your payment currency, it transfers your purchased currency. This currency, minus miner fee, is sent to your destination wallet.
With the explosion of ICO’s and altcoins over the last year, the number of cryptocurrencies an exchange supports have never been more important. Unfortunately for this platform, it doesn’t really shine here.
At the moment it only has a little over 50 available coins like Ethereum, Bitcoin, and Dogecoin to name a few. There are numerous others but most are currently blocked out with ‘temporarily unavailable’ banners. There’s no indication from Shapeshift management that this will change anytime soon.
Shapeshift stands out from other exchanges by charging no transaction fee. The only fee an investor will see is the actual miner fee to process a transaction on the blockchain. It does this by updating its pricing models for cryptocurrency pairs every thirty seconds.
This platform makes money using currency arbitrage to profit from the spread between the buy/sell of different cryptocurrencies. Shapeshift reported that this usually amounts to about .5% per transaction.
Withdrawal & Deposit Fees
Because it never has custodial access to trader’s funds, there are no withdrawal fee nor deposit fee.
Shapeshift in its original form created a very secure experience for users. Since they didn’t require an account to trade, all you had to do to protect yourself was properly safeguard your wallet information.
With the recent changes to this platform, it’s now necessary to look at their security measures much more closely. Shapeshift requires a strong password and the use of two-factor authentication on all accounts. It only allows app based two-factor authentication, a point in their favor. It also gets good marks for protecting its user’s personal information.
According to the platform, all identity information is kept separate from day to day account information. It is stored in encrypted and air-gapped storage devices that can only be opened for account support or surrendered due to a court order.
All in all, Shapeshift exchange’s security precautions are adequate for a crypto-to-crypto exchange that never directly stores your personal funds.
Is Shapeshift legit?
In September 2018, it was called out by the Wall Street Journal for being a hub of illegal money laundering activities. The article reviews the platform and made the contention that the highly anonymous nature of this platform made it the perfect environment for criminals to transform their illicit gains from Bitcoin into other more anonymous cryptocurrencies such as Monero.
Shapeshift responded swiftly, with CEO Erik Voorhees listing out a number of inconsistencies and inaccurate statements made in the article. The biggest point made was that the transactions listed made up less than .15% of its total volume during the period in question. He also pointed out that the transactions the WSJ noted as being related to money laundering were actually just routine transfers between generic crypto exchange addresses.
This is the only Shapeshift scam alleged since it began operations, and it has been pretty well debunked.
The platform really shows its focus on being a crypto-to-crypto exchange rather than a true trading platform. You can only make straight buy/sell commands with no option for limits and definitely no margin trading available. Experienced traders will definitely find this lack of trading options to be limiting.
It does offer an affiliate program that encourages users to invite others to join. Affiliates receive half of the fee generated by referred users, currently valued at about .25%.
It also has API support and both Android and iOS apps available for on the go transactions. These are available in the App Store and Google Play Store respectively.
For a U.S. based cryptocurrency exchange, Shapeshift really drops the ball on customer support. It offers the usual set of support articles and getting started guides but has very little in the way of direct support.
Right now it only provides a single point of contact, an online help ticket system, and doesn’t give any information on the wait time for support. The only spot of brightness for its customer service section is the ability to refund transactions sent to incorrect addresses.
Most others heavily stress the irreversible nature of any transaction and leave it up to the user to ensure they correctly enter in their wallet address. Shapeshift has a feature called auto-refund that allows users to put a refund wallet address on their transaction page. This provides a safety net that captures funds in case a transaction fails.
Most cryptocurrency exchanges provide poor customer service but based on user reviews, it is above average among them.
Ease of Use
Like most crypto-to-crypto exchanges Shapeshift is less user-friendly than a centralized trading exchange. It somewhat makes up for this by providing an effective and simplified version of crypto trading but still doesn’t match the trading interface of something like Binance.
If you absolutely want to use a crypto-to-crypto exchange this is easier to figure out and use than many others. The buy/sell option is right on its landing page and doesn’t require users to select a buyer or purchaser. It appears to be going for simplicity rather than the full features of a trading platform.
Using it, though more difficult than it was before recent changes, is still fairly simple. Account creation takes just a few minutes and verification only takes a few days. Follow this step by step guide to see how easy setting up an account and initiating a trade can be.
Creating an account on this platform starts by clicking on the Sign Up tab, either on the pop up when you first land or in the top right corner of the homepage. This will open up a window like the one below.
You’ll be asked to provide an email address and create a password. Once you do this a two-factor authentication QR and key will be provided. When you’ve successfully bound your key to an app you’ll need to verify your provided email address. The next time you log in after this you’ll be taken to the account dashboard and asked to verify your identity.
Verify Your Account
When you’ve created your account there is a two-step verification process, followed by an approval period. Start on the left-hand side of your account dashboard. Select the Account Verification tab. In the account verification section, you’ll be prompted to enter your full name, birthdate, phone number, country of residence, and full address.
Continue past this screen and you’ll be brought to the ID verification window. Here you’ll need to provide a clear, front and back picture of your government ID. If you’re a U.S. citizen Shapeshift also requires you to provide your Social Security number.
After you complete this there will be a several days wait for your account to be verified.
Fund Your Account
Once your account has been created and verified, you’ll need to decide how you want to purchase cryptocurrency. Shapeshift doesn’t allow users to store their funds on its exchange nor does it accept any form of fiat currency.
Simplex has partnered with this platform to allow you to purchase Bitcoin using your credit card. This won’t deposit the funds into your account, so you’ll still need to provide a Bitcoin wallet address.
Trading on Shapeshift
When your newly created account has been verified you’re ready to start making trades. While still logged in, navigate to the home page and select the two cryptocurrencies you wish to exchange like Bitcoin and Ethereum. Then you will choose whether you want to use a quick or precise trade. Quick trades go through for whatever amount of currency is available up to the amount you’re willing to trade. Precise trades only happen if the exact amount you requested is available.
You’ll be taken to a page and asked to enter in the deposit address for the exchange and a refund address for the original currency you’re trading. This allows you to capture back your funds if the exchange fails for any reason.
At this point, a deposit address will be displayed. Enter the wallet information you want to use to fund the transaction and confirm the order. As soon as Shapeshift detects funding you’ll receive your purchased cryptocurrency.
Shapeshift Review Final Thoughts and Opinion
Shapeshift is looking at some major changes, and we aren’t convinced they’re for the better. With the addition of KYC requirements, it has removed all the anonymizing features that made crypto-to-crypto exchanges popular in the first place. Without this, it loses the only real advantage it had over exchanges like Binance or KuCoin. It allows only basic trades of a limited selection of cryptocurrencies, doesn’t provide sophisticated analysis tools and doesn’t support any fiat transactions.
In short, Shapeshift will soon be in the unenviable position of having all the downsides of a centralized cryptocurrency exchange with none of the benefits.