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Kraken review

ShapeShift Vs. Kraken – Why Choose When You Can Use Both?

ShapeShift vs Kraken at a Glance

Kraken markets itself as a professionally-run crypto exchange for advanced traders. It offers sophisticated analytical tools, margin trading and high-volume markets. ShapeShift, on the other hand, takes a more retail-oriented approach with near-instant trades and no need to create user accounts.

Is there a reason to choose between the two? Our comparison of ShapeShift vs Kraken will help you decide.

ShapeShift Kraken
Pros
  • Fast and simple currency exchanges
  • Trade between any two coins on the exchange
  • Does not hold your assets
  • No need to register or verify
  • Fund accounts with five fiat currencies
  • High-volume markets
  • Advanced trading tools
  • Leveraged trading
  • Lower fees, especially for high-volume traders
Cons
  • High 0.5% cost baked into exchange rates
  • No fiat currencies
  • Market orders only
  • Access limited by geography
  • Limited to highest-volume altcoins
  • Only available in 37 US states

Where Did They Come From?

Both Kraken and ShapeShift reflect the personalities of their founders both of whom still lead their companies. Jesse Powell’s Kraken aims to bridge the gap between the cryptocurrency world and the traditional, fiat-based financial system. Erik Voorhees’s ShapeShift ignores the fiat world altogether, focusing on the needs of crypto enthusiasts.

ShapeShift

ShapeShift altcoin-to-altcoin trade
Source: ShapeShift

Entrepreneur Erik Voorhees founded several bitcoin-related companies in the early 2010s. Throughout that period, Voorhees became frustrated with the trading experience. Like many exchange founders, Voorhees decided he would have to be the one to solve the problem.

ShapeShift launched in 2014 as an instant exchange for bitcoin and litecoin, but it did not stop there. Within a year, the exchange supported nearly two dozen altcoins.

Voorhees stayed anonymous through the first several months of ShapeShift’s existence. The company chose that path so ShapeShift could “build a service that was safe and trustworthy by design, not by faith in the creator.”

It could also have something to do with the settlement agreement Voorhees signed with the US Security and Exchange Commission a few months before ShapeShift’s launch. The SEC had charged Voorhees with selling shares in his earlier bitcoin startups without the mandatory registration.

Although this incident could have been a black mark against ShapeShift, Voorhees’ consistent communications with his customer — especially in the wake of a hacking incident in 2016 — earned ShapeShift a degree of trust.

ShapeShift also has support from some of the biggest stars in the cryptocurrency universe. Roger Ver and Barry Silbert both led the early funding round in 2015. ShapeShift’s Series A investment round closed last year after raising more than $10 million from major investors.

Related: ShapeShift.io Review: More Altcoin Trading Options than Most Exchanges

Kraken

Kraken CEO Jesse Powell
Source: Kraken

Jesse Powell was also an early participant in the bitcoin community. His reputation was such that, after the MtGox exchange was hacked, Powell was asked to help repair the damage. When Powell saw how poorly-run MtGox had been, he decided to create an exchange that was run more professionally.

Powell started developing his ideas in 2011, but it wasn’t until 2013 that Kraken emerged from its beta-testing stage. Kraken became the largest euro-based exchange by trading volume a year later.

As Kraken’s reputation grew, the exchange seemed on the verge of becoming the bridge between the worlds of old and new money. In fact, the Japanese trustee responsible for winding down the MtGox bankruptcy tapped Kraken to search for the failed exchange’s missing bitcoins.

However, the development of New York State’s BitLicense and, more recently, Japan’s tighter scrutiny of cryptocurrency exchanges tested the limits of Powell’s willingness to play by governments’ rules. Faced with the heavy costs of a BitLicense application, Kraken chose not to do business in New York.

Today, Kraken regularly places in CoinMarketCap’s top twenty exchanges by 24-hour trading volume. A recent snapshot showed nearly $235 million worth of trades on Kraken, earning it a twelfth-place ranking for the day.

Related: Kraken Review: High Liquidity Markets for Advanced Traders

Supported Currencies and Listing Policies

When ShapeShift launched in 2014, the exchange only supported trades between bitcoin and litecoin. Today, you can trade between more than 50 cryptocurrencies.

“Basically its claim to fame is that there’s no account or sign up at all,” CEO Voorhees explained in a 2015 interview with Forbes. “It’s sort of like a vending machine where you just visit the website, send one kind of digital currency, and we send you a different kind of digital currency.”

More importantly, ShapeShift trades can happen between any two altcoins. Other exchanges limit trading pairs to a small number of markets based on high trading volume coins – pairing most altcoins with bitcoin or ether, for example. ShapeShift lets you trade any coin with any other coin.

Kraken’s strength is providing the ability to trade cryptocurrencies against fiat currencies. At the moment, Kraken supports seventeen cryptocurrencies and five fiat currencies. Business Insider, citing “a person familiar with the company’s operations”, reported that Kraken plans to expand its altcoin listings in 2018.

You can’t, however, trade between any combination of these you want. Kraken is set up more traditionally with markets in the five fiat currencies, bitcoin and ether. As you can see in this table, bitcoin, US dollars and euros offer the deepest markets for traders.

Market Trading Pairs
Bitcoin 15
US dollar 14
Euro 13
Canadian dollar 6
Ether 6
Japanese yen 5
British pound 3

Despite these limitations, Kraken’s willingness to accept deposits in so many fiat currencies helps drive its popularity.

Listing policies

Kraken does not publicly discuss its listing policies, but tends to focus on the highest-volume altcoins. When Kraken de-listed Namecoin in 2016, the announcement simply said that “trade volumes for Namecoin just weren’t there.”

In a statement on the ShapeShift blog, the exchange explained that, when evaluating a listing application, it “considers a large number of factors encompassing considerations from leadership, operations, finance, business development, and legal.” The statement also said that ShapeShift is considering a more formal set of guidelines for new crypto teams to follow.

Security and Hacks

Shapeshift hack
Source: ShapeShift

ShapeShift’s business model is designed to be inherently secure. In his Forbes interview, Voorhees explained how the exchange’s customers never have their assets exposed to hackers:

“We don’t ever have to hold customer money like a normal exchange. It’s a definite advance for consumer protection because there’s no risk of hacking or of the operators running away with money.”

That does not mean ShapeShift is immune to hacking. A year after making his statements to Forbes, ShapeShift lost more than $230,000 in cryptocurrency at 2016’s exchange rates.

An employee fired for stealing bitcoin from ShapeShift’s hot wallet system gave inside information to a hacker. That compromised the exchange’s hot wallets for bitcoin, ether and litecoin so completely that ShapeShift had to shit down for a week to fix the mess.

Throughout the event, Voorhees sent a steady stream of communications to his customers and the broader crypto community. ShapeShift absorbed all of the losses as none of the stolen assets belonged to its customers. Voorhees brought in an outside firm to investigate the hack and released the final report to CoinDesk where you can still read it.

Learning from MtGox

“Kraken has never been hacked and still remains unhacked,” Kraken software engineer Max Kaplan said in a widely-cited tweet. Although not an official statement from the exchange, Kaplan’s tweet came after trading on Kraken stopped for a few days in early 2018.

Kraken had deployed a system update to handle the exponential growth in trading. Despite several notices from Kraken in advance of the upgrade, many people in the crypto community and crypto press immediately speculated that a MtGox-style hack had occurred. In fact, glitches in the update forced Kraken to keep the sit offline.

Powell had taken to heart the lessons he learned cleaning up the MtGox mess. Kraken’s security procedures include air-gapping the most sensitive systems, such as customer data and cold wallets, from the public website. Heavy use of encryption, with requirements for multiple authorizations, provide another barrier to hackers. Kraken even places different internal departments on different networks. The computers and network used for account verification, for example, can’t be used for any other aspect of Kraken’s business.

The few times Kraken’s customers have had their funds stolen, the customers themselves were victims of phishing attacks and had failed to use Kraken’s 2-Factor Authentication system.

Availability and Identity Verification

Kraken leaves New York
Source: Kraken

Kraken launched with a focus on Europe. With the purchase of two failing exchanges, America’s Coinsetter and Canadian Cavirtex, Kraken entered the North American market. Today, Kraken is available in any region with a light regulatory burden.

In the United States, Kraken only operates in about 37 states and the District of Columbia. In addition, state regulations prevent Kraken from offering its complete range of services. For example, residents of Texas, New Hampshire and Washington cannot place margin orders on euro-based trading pairs.

The exchange withdrew from New York in 2015 rather than submit a BitLicense application. Kraken’s farewell message to New Yorkers: “If the BitLicense becomes significantly nerfed at some point in the future, we may attempt a rescue.  Until then, you’re on your own. Good luck.”

More recently, Kraken withdrew from the Japanese market. Although CEO Powell pointed the finger at tighter scrutiny from Japan’s regulators, he also mentions the exchange’s low market share: “Perhaps we focused too much on regulation and not enough on marketing.

Geofencing access

At first, ShapeShift was available to anyone around the world. If the regulatory burden in a specific region became too much, ShapeShift simply blocked access. Residents of the American states of New York and Washington, for example, get redirected to the PleaseProtectConsumers.org website which points out that North Korea is the only other place treated this way.

ShapeShift implemented a less heavy-handed approach in early 2018 as new regulations began appearing in various countries. The products and services you can access on ShapeShift depend on where you access the site. Americans, for example, won’t be allowed to trade in certain tokens that the SEC may have issues with.

“We take our position as a leader in this industry very seriously,” ShapeShift said in the announcement, “and will not allow the actions of one jurisdiction to affect our customers residing in other jurisdictions.“

Verification policies

Kraken has four tiers of verifications. The most basic verification tier requires name, date of birth, country and phone number in order to deposit and withdraw cryptocurrencies.

The second and third tiers unlock fiat deposits and withdrawals as well as raise trading limits. Which one you need depends on where you live. Americans, for example, must provide the proof of residency documents required for tier three verification.

ShapeShift does not require verification — it doesn’t even require you to register an account. As long as you provide valid wallet addresses, your trades will go through. ShapeShift justifies this policy based on the fact that it does not hold its customers’ assets and does not support fiat currency trades.

Trading, Fees and Apps

Trading interface

EOS on Kraken
Source: Kraken

Kraken is a full-featured exchange modeled on the traditional finance world’s trading platforms. Besides placing the standard market and limit orders that other exchanges offer, you can assign conditional options on your limit orders. Among the options, you can set the start and stop times of your orders, force your order to only trigger maker fees, set stop loss conditions, and more.

Kraken’s web app provides sophisticated tools that let advanced traders analyze trends in market behavior.

Kraken is also one of the few cryptocurrency exchanges that supports leveraged trading. Borrowing to fund your trades can greatly amplify the gains you make — at the risk of amplifying your losses. Some exchanges pool customers’ assets (with permission) to fund leveraged trades. Kraken, however, uses its own accounts to provide margin loans.

You cannot place margin orders on all of the trading pairs Kraken offers. The exchange limits leveraged trading to the highest-volume markets such as bitcoin to the US dollar or ether to euro.

Crypto exchange as vending machine

Quick exchanges on Shapeshift
Source: ShapeShift

“ShapeShift’s goal is to be the fastest, most private, and most convenient way to swap digital currencies.”

This clear focus gives ShapeShift a much different trading model than exchanges like Kraken. ShapeShift maintains its own hot wallets for each cryptocurrency it supports. When you place your order at the quoted exchange rate, ShapeShift takes the coins your trading and deposits the coins you requested in your wallet.

This makes the ShapeShift interface much simpler for new crypto fans and more convenient for cryptocurrency enthusiasts overall. Within that interface, ShapeShift gives you two options: a Quick Exchange and a Precise Exchange.

Quick Exchanges give you the convenience of using the same deposit address to send coins to ShapeShift at the expense of greater exposure to exchange rate volatility. Precise Exchanges lock in exchange rates for five minutes and let you make larger deposits, but this kind of exchange only works for the specific amount you request and the deposit address only works once.

If you want something a little more sophisticated, then apply to join the closed beta for ShapeShift’s Prism service. Prism lets you create, in effect, your own exchange-traded fund. You define a basket of cryptocurrencies and Prism creates an Ethereum-based smart contract that tracks the market performance of your basket.

Fees

Since ShapeShift does not hold its customers’ assets, you will not have to pay deposit or withdrawal fees. In addition, ShapeShift does not charge fees for each trade. The exchange makes its money on the “spread”, the difference between the exchange rate it quotes you and the rates it gets from other sources.

ShapeShift sets the spread to about 0.5%, which makes it much more expensive than Kraken. The exchange partially offsets that higher cost by lowering the cost of mining fees. Many exchanges submit each trade to the appropriate blockchain one by one. ShapeShift, on the other hand, bundles its transactions together. Blockchain miners charge lower fees to get those bundled transactions, which ShapeShift passes on to its customers.

Kraken has a much more complex system of fees. Most methods of depositing and withdrawing fiat currencies will generate fees of various levels. Most crypto funding methods are free, but Kraken does charge for the setup or deposit of certain altcoins and tokens.

Each trade you make on Kraken may generate a fee based on Kraken’s maker-taker structure. This rewards the makers — traders who add liquidity to the exchange. Fees start at 0.16% for makers and 0.26% for takers. The highest-volume makers pay no fees and taker fees drop to 0.1%.

Mobile apps

Shapeshift on mobile
Source: ShapeShift

ShapeShift has apps for iOS and Android that let you make the same kinds of trades as on the website. Although the ratings for each app are in the 3-star range, most of the critical reviews are for ShapeShift customer support response times rather than for the app itself.

ShapeShift offers another mobile app called CoinCap that lets traders time their exchanges based on real-time exchange rates.

Kraken’s app experience is lackluster. Only on iOS, the last major update came after Apple released iOS 8 and the iPhone 6 in late 2014. Slow and buggy operations have earned the app a 1.3-star rating in the app store.

Customer Support and Community

Both exchanges offer self-serve support sites and moderate their own subreddits to answer general questions. The two exchanges also offer ticket-based support for specific questions.

ShapeShift Kraken
Ticket-based system Yes Yes
Telephone support No No
Online chat No No
Knowledge base Yes Yes
FAQ No No
In-house forum No No

ShapeShift, and Voorhees in particular, earned praise for the way they shared information with the community during the 2016 hacking episode. Michael Perklin, the forensic investigator brought in to figure out what happened, told BTCManager:

“Never before have I witnessed a breach which has been publicized so transparently, either in the Bitcoin space or elsewhere.”

While updates were posted to the ShapeShift blog, Voorhees spoke directly to the community through posts on Reddit.

Cryptocurrency Regulation

From the beginning, Jesse Powell has positioned Kraken as a responsible cryptocurrency exchange that can integrate with the traditional world of fiat finance. That attitude leads Kraken to implement policies and procedures that respect the regulatory environment it operates in.

Kraken was one of the first digital exchanges to develop a strong relationship with a regulated bank, Germany’s Fidor Bank. Bloomberg included Kraken in its Terminal service — a first for the crypto world. And when the parent company of the Chicago Mercantile Exchange created a bitcoin futures market, Kraken was one of the exchanges chosen to set the market’s index rate.

However, Powell has strong opinions, especially regarding crypto regulators. Recently, Powell posted a sharp-tongued response to New York’s attorney general:

“New York needs to make a special effort to reengage [sic] the industry.  Making surprise, public, unreasonable demands is not getting off on the right foot toward reestablishing [sic] trust and building a relationship.”

In the same statement, Powell was more conciliatory to Japanese regulators, saying “I have to give the FSA in Japan a tremendous amount of credit for getting it together.  They are a fine regulator to work with.”

Final Thoughts

Kraken and ShapeShift offer such different services that you can’t really say that one is better than the other. In fact, the two exchanges are not mutually exclusive. Whether you use one or the other will depend largely on your needs for any given trade.

Kraken works best as an investment tool where you can make frequent trades in high-volume markets. The interface is more complex, especially if you’re trading on margin, but the cost of trading is much lower. You also get the flexibility of funding trades using fiat currency.

ShapeShift is a convenient place to make quick trades. It is limited to cryptocurrencies only, but you get much more flexibility to trade between coins than almost any other exchange. The 0.5% commission baked into ShapeShift’s exchange rates makes ShapeShift more expensive, but getting a better rate elsewhere requires a lot more time and effort.

Christopher Casper

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