Summary

Bitstamp is the fourth largest BTC/USD exchange in the market, with approximately 10% of overall volume at time of writing. Most trader’s are European, though Bitstamp is a USD-only exchange.

Bitstamp has taken the lead in lobbying European governmental agencies to craft common-sense bitcoin regulation, which they believe will serve to both minimize money-laundering activities and expand the bitcoin network. This has led to some grumbling amongst bitcoin purists who see regulation as a betrayal of bitcoin’s roots, as they see them. This feeling has been somewhat amplified by Bitstamp’s rather ham-fisted treatment of its non-verified customers, who were threatened with account seizure should they not submit documentation.

Bitstamp unfortunately made headlines at the start of 2015 when their hot wallet system was compromised, resulting in a loss of $5m in tradere funds. CEO Nejc Kodric went on record stating that this was a small fraction of Bitstamp’s total reserve, the overwhelming majority of which is held in cold storage. He further stated that affected customer accounts would be restored to pre-breach levels. A month later, Bitstamp seems to be making good on their promises, but the jury is out on whether the damage, both financial and reputational, is reparable.

In our opinion, traders should not avoid Bitstamp due to the hack breach, which they responded to as well as could be expected.  Lessons were learned, and changes made to the security architecture that actually places bitstamp as one of the top exchanges from a security perspective.

Security

In January 2015 a thief gained access to Bitstamp’s operational hot wallet eventually transferring 19,000 bitcoins, worth $5m at the time, to his or her personal wallet. As bitstamp realized what was happening they engaged in a race with the thief to claim what was left in the wallets, with bitstamp transferring funds to cold storage, the thief to his wallet.

A $5m security breach would seem to warrant, ipso facto, a negative security review. However, Bitstamp is not particularly unique in their hot wallet storage mechanism. Bitstamp, like most exchanges, pool customer coin together in hot and cold storage wallets. The actual Bitcoin storage is entrusted to the operator, Bitstamp in this case, who possesses the private keys to authorize transactions. While private keys to cold storage wallets are kept entirely offline and are thus theoretically immune from attack, hot wallets require access instantly and often to facilitate efficient trading, meaning keys must be stored in online servers.

While the multiple passwords, two-factor authentication and email confirmation of withdrawals offered by bitstamp protect client-side security breaches – meaning those originating from a customer’s computer – they are ineffective against server-side breaches, which was likely what happened in this case though the investigation is ongoing.

In response to the breach, Bitstamp underwent a wallet and security overhaul, which hopefully will be quickly adopted by the rest of the exchange industry. Most important to emphasize is the integration of BitGo’s 2 of 3 multiple -signature solution for the hot wallet. Multi-sig wallets require two of three keys, each stored on completely separate devices, to authorize a transaction.

The first key, held by Bitstamp, signs a transactions, which is submitted through an API to Bitgo who holds the second key for authorization. Bitgo has a risk analysis matrix, comprised of a number of different security checks. If there is any issue with a transaction, any number of actions may be taken, including for instance requiring manual authorization of the account holder. The third key is a backup in the case of an unforeseen disaster, used to ensure that customers will retain control of funds should something happen to either Bitgo or Bitstamp. Had this system been in place, the bitstamp hacker would have needed to compromise the BitGo server as well to gain access to the hot wallet.

This multisig system is considered the future of online bitcoin security. Currently, Bitstamp is the only major exchange to have implemented a multi-sig solution. Other exchanges continue to hold one private key to authorize transactions, representing a single point of failure. It could be that, just one month after a massive security breach, BitStamp is now one of the leaders in bitcoin wallet security.

Gravitas

BitStamp has a well recognized executive management team based in London, with additional offices in California and Luxembourg. CEO Nejc Kodric is a well-known public figure in the bitcoin industry, and he and his executive team are working with regulatory agencies in the US, UK and EU to push for sensible bitcoin regulation. Pantera Capital, a bitcoin-only investment fund backed by a number of major investment groups, invested $10m in bitstamp. Pantera CEO Dan Morehead is the chairman of Bitstamp’s board of executives.

They responded well to the security breach. Customers were immediately notified and told not to make additional deposits. Services were then suspended entirely for three days while BitStamp worked to ensure the wallet systems were safe for use. They subsequently rebuilt systems “from the ground up”, running from entirely new hardware deployed from a “completely secure backup of code and data”, moved to Amazon’s Web Service cloud infrastructure, and worked with bitgo to release the first multisig hot wallet, which has been touted as the next generation in online wallet security.

Mr. Kodric assured customers in the immediate aftermath of the breach that lost coins would be compensated. He further stated that “only a small fraction” of total reserves had been stolen, and that the vast majority of bitcoin was safe in cold storage – 183,497 bitcoins according to a May 2014 audit. If we account for no additional earnings between then and January, the hot wallet theft accounted for 12% of their overall reserves. This, combined with the financial backing of Pantera, has allowed BitStamp to absorb the losses itself and honor commitment to customers.

A month later, Bitstamp has suffered a drop in liquidity, but is back to being the third largest USD/BTC exchange.

Opening an account

Account verification is required before any fiat or digital currency services are offered.

1. Scanned, high resolution of government ID
2. Proof of residency. Must be scanned paper copy.
3. Standard biographical information.

Recently BitStamp has been criticized for blanket communications with non-verified customers that accounts could be seized if KYC and AML requirements were not completed. While it is currently not possible to begin trading without completing KYC, many customers had been trading for months or years previously without document submission.

While bitstamp’s communications were perhaps a bit off considering they were implementing a retroactive change to existing accounts, these KYC/AML requirements are a prerequisite of any regulation of the bitcoin exchanges.

Bitstamp trading software

Bitstamp recently disallowed access to the platform to users who have not completed document verification, which is unnecessary and most likely discourages completion of KYC by those that would like to actually see the product they are meant to trade on prior to taking the additional step of providing personal information.

For those that decide to send in their documentation, they’ll find an extremely simple trading platform, without the advanced features of rival exchanges such as Kraken, Bitfinex or OKcoin.

They offer three different order types, instant, limit and stop orders, which are separated into different interfaces. The instant order display has large buy and sell icons displayed above the order book which present the top seven buy/sell prices. A click on buy or sell is all it takes to execute your chosen trade. navigation to the advanced interface, which allows a trader to input limit orders and take profit/stop loss. While Bitstamp most likely separates between the instant and advanced trading views for simplification purposes, it seems to have the opposite effect from a UI perspective.

The “tradeview”, which the technical trader might find useful, offers a charting functionality, sortable by time frame and offering a few different types, like candles, lines, bars and mountains. There is no trading functionality from this page.

Bitstamp Fees

Bitstamp uses Slovenian bank Raiffeisen, meaning EU customers benefit from preferred SEPA transaction rates. All currencies are automatically converted to USD. Raiffeisen seems to have a decent EUR/USD exchange rate, with a spread of less than 1 cent. Bitstamp’s liquidity, combined with banking convenience, has made it a destination exchange for EU customers, who make up a large chunk of bitstamp’s trading volume.

Bitstamp’s fee structure is displayed below. Bitstamp tags a .1% deposit fee on International bank transfers, with a minimum $15 charge.

Fee	30 day USD trading volume
0.25%	<$20,000
0.24%	<$100,000
0.22%	<$200,000
0.20%	<$400,000
0.15%	<$600,000
0.14%	<$1,000,000
0.13%	<$2,000,000
0.12%	<$4,000,000
0.11%	>$20,000,000
0.10%	>$20,000,000

Mobile

Bitstamp has a fully responsive site and platform, allowing for depositing, withdrawing and trading funds from handheld devices.

Support

Bitstamp offers email support through a direct email address or a ticketing system. Agents respond promptly and are exceedingly helpful.

Bitstamp might not be for you if:

You live in the United States.

Bitstamp is a great option if you are trading in euro or if you are a non-US resident looking to trade in USD.  If you live in the United States, there are a number of exchanges that are probably a better choice due to local deposit options, lower fees and higher volumes during US trading hours.  Check out the best US bitcoin exchanges for more information.

 

You want to trade with a bit of margin, or you are looking for a futures platform.

We are pretty much in love with Bitmex, which has a beautiful trading platform with multiple spot and futures markets and adjustable leverages pretty much as high as you would like to go.  Bitmex only accepts bitcoin deposits, so you might very well want to use bitstamp as your on ramp.

Bottom line

Bitstamp is an easy to use exchange with high volumes in bitcoin markets against both usd and eur.  Particularly for eurozone customers, bitstamp is definitely worthy of a go.