After seeing the poor way that MtGox was managed, Powell decided that there was a need for a digital asset exchange which could fulfil the requirement for high security standards and deliver services according to latest market trends of the growing industry. Powell envisioned an exchange that catered and appealed to proficient traders, designing implementations like the ability for margin trading.
Since then, Kraken has been able to achieve those objectives and then some.
Now without any further delay, let’s read further details about Kraken, the exchange which proudly derives its name from the legendary sea monster.
Table of contents:
- Time for a History Lesson!
- Where Is It Now?
- What Products Does Kraken Offer?
- How Does Trading on Kraken Work?
- How Safe Are My Funds With Kraken?
- Kraken Fee Structure.
- Trouble in Paradise.
- Should Customers Go With Kraken, Then?
Time for a History Lesson!
Once Kraken was founded, it took two years to develop its backend system and infrastructure. In September 2013, the exchange launched its services by offering trading between Bitcoin, Litecoin and Euro – listings and trading pairs which it built upon by adding further cryptocurrencies such as Dogecoin and Stellar, as well as the ability to trade through conventional currencies such as U.S. Dollars, Japanese Yen, British Pounds and Canadian Dollars.
In 2014, Kraken received $5 million in its Series A funding round, led by European venture capital fund, Hummingbird Ventures.
In less than two years since its launch, Kraken recorded over $1.4 billion in transactions made on its platform. This particular feat cemented its reputation as one of the exchanges that had the most potential to grow within the cryptocurrency space.
These milestones helped Kraken catch the eye of further investors. The exchange went through its Series B round of funding and secured an undisclosed amount of investment from popular and reputable names such as SBI Holdings and the Money Partners Group.
Kraken has also taken steps to continue to stay in line with the regulations, allowing the exchange to stay legally compliant, showing stakeholders that it is aiming to be a player for the long term.
Where Is It Now?
Coming a long way from the regulatory uncertainty that it faced back in 2013, Kraken has since established itself as one of the most popular cryptocurrency exchanges in the U.S. and is currently headquartered in San Francisco.
However, establishing itself within the U.S. was not easy, the company struggled to stand against the likes of Coinbase – the primary digital asset exchange within the country, thanks to its easy to use mobile app and its early claim to the U.S. territory.
But this initial obstacle did not stop Kraken from trying as it continued to delve into the North American territories. The most tangible results of such activities came in the form of the acquisition it made for two U.S. and Canada based exchanges in 2016.
That being said, the road from being one of the most popular cryptocurrency exchanges to being the most popular digital cryptocurrency exchange in the U.S. seems to be a long one for Kraken, as it is still continuing to strive for that position in the marketplace.
Apart from the stern competition in the U.S. and its efforts for establishment there, Kraken has also branched out in Europe by acquiring numerous existing exchange companies within several territories, and also provides services in Japan.
It is a move which has paid off for Kraken, since the exchange has been doing very well for itself in terms of global market value.
It has grown to such an extent where it is consistently recorded as one of the top 10 digital asset exchanges in the world in terms of daily trading volume. According to statistic platform CoinMarketCap, the exchange has a daily trading volume of more than $600 million.
Kraken also holds the distinction to be the topmost exchange in terms of Euro volume and liquidity.
Adding to its credibility, Kraken was chosen to facilitate the investigation and liquidation of lost assets from the Mt. Gox hack, with the decision being made by a Trustee for the fallen exchange.
Following the announcement, Kraken opened a claims procedure for affected creditors of Mt. Gox, and this move helped establish itself as a credible and trustful entity within the cryptocurrency world.
With all these developments under its belt, Kraken also continues to update its offerings its platform. These updated offerings plus its wide array of digital assets and ability to trade in fiat as compared to its counterparts are one of the major factors which set it apart.
Having said that, let’s take a look at the kind of products that the exchange has to offer as well as the overall ease of use in navigating the platform.
What Products Does Kraken Offer?
As compared with other exchanges within the U.S. that only offer a handful of cryptocurrencies and trading pairs (such as Gemini or Coinbase), Kraken has one of the most diverse lists of cryptocurrency offerings.
Kraken has the following cryptocurrencies available for trading, added gradually over time since the start of its operations.
- Bitcoin (XBT) – Kraken uses “XBT” instead of “BTC” according to ISO 4217 Currency Codes
- Ethereum (ETH)
- Bitcoin Cash (BCH)
- Monero (XMR)
- Dash (DASH)
- Litecoin (LTC)
- Ripple (XRP)
- Stellar/Lumens (XLM)
- Ethereum Classic (ETC)
- Augur REP tokens (REP)
- ICONOMI (ICN)
- Melon (MLN)
- Zcash (ZEC)
- Dogecoin (XDG)
- Tether (USDT)
- Gnosis (GNO)
- EOS (EOS)
Working as a traditional cryptocurrency exchange, Kraken offers trading between these cryptocurrencies by using trading pairs.
Customers can exchange one of these assets for another one that is offered in a trading pair, such as XBT/ETH, or they can purchase them through their fiat currencies by using trading pairs like LTC/USD.
How Does Trading on Kraken Work?
Users submit their buy and sell trading orders through Kraken’s website, if requirements for deposits in traditional currencies need to be met, users follow the process for doing so before their trading orders can be executed.
Furthermore, Kraken requires its customers to initially go through a verification process before proceeding to execute any orders. In order to meet additional trading request requirements, customers also have to meet additional verification requirements (at times).
The exchange has divided those verification requirements into different tiers.
Tier 0: In this tier, no information or verification but that of an email address is required. This gives customers an overview of the system but holds them from participating in trading activities.
Tier 1: In this tier, customers’ full name, date of birth, phone number and country of residence is required. This is the basic tier to start performing trading activities, but the deposits and withdrawals are limited to digital currency. That is to say, customers at this tier can deposit cryptocurrencies that they already have in another digital account and even sell those for fiat in the platform. But when the time comes for withdrawing the amount, it has to be done in a digital currency of their choice.
Tier 2: This tier requires customers to provide their complete address along with the information submitted in Tier 1. Depending upon the country of residence, customers can then get access to fiat deposits and withdrawals.
Tier 3: This tier asks customers for proof of a government issued ID along with proof of residence, which can be submitted through Kraken’s website. This tier’s verification is required to be met for fiat deposits in the U.S., Canada, Germany, Japan, and several other countries. Sometimes, a photo ID confirmation is also required. This tier also provides higher values for withdrawals.
Tier 4: This tier mostly requires additional know-your-customer (KYC) procedures to be fulfilled with the addition of a signed application and other documents. The details are provided upon request by Kraken to individuals and corporations who are interested in higher transaction limits.
Kraken describes that it completes Tier 1 and Tier 2 verification within a few hours at most, with Tier 3 and above taking more than a few days.
Kraken also lists the deposit and withdrawal limits for U.S. residents.
Once customers have completed the verification process, they can start using the exchange’s trading services.
If a deposit in fiat is required during trading activities, then it usually takes somewhere around 1-7 days to get processed, with CAD (SWIFT) transfers taking up to 12 days.
In a recent move, Kraken informed its Japanese clients that it will be withdrawing support for SWIFT bank accounts. However, the company insisted that its Single Euro Payment Area (SEPA) transfer system will remain intact.
Withdrawals, on the other hand, can take somewhere around 1-5 business days, with a possibility of additional time for U.S. residents.
Kraken also provides margin trading to its customers, which enhances its offerings especially for seasoned traders.
By using margin trading and benefiting from leverage, customers can open positions that are larger than the available balance in their account.
For instance, if a customer deposits $2,500 in their account, they can open a position of $5,000 XBT/USD by using leverage on account (long or short).
If the customer then decides to close the position for about a 20% gain, their account balance grows by 40% ($1,000). The possibility of additional gains is what makes leverage so lucrative.
However, margin trading can be just as hazardous as it is exciting, because it does not only multiply your gains but the possible losses as well. (Always remember to use leverage with extreme caution.)
Remember: Leverage might make you, but it can definitely break you. Leverage can increase your gains, but it is also dangerous because it can amplify your losses just as easily.
Margin trading is currently offered by Kraken for the following trading pairs:
The fee structure for margin trading is described below:
How Safe Are My Funds With Kraken?
With the Mt. Gox incident being mentioned above and the arduous ordeal that investors had to go through to retrieve their funds, a question that lurks in many a reader’s mind might be, just how safe are my funds when placed on the Kraken exchange?
Kraken being founded or inspired by the Mt. Gox situation and being selected through an extensive vetting process to execute the liquidation procedure for Mt. Gox speaks of Kraken’s credibility when it comes to security.
Kraken also follows industry best practices by employing procedures such as the segregation of company and individual customer bank accounts, which means that any funds being held by customers will never be merged with the company’s own finances – which in turn ensures that those funds remain safe.
When it comes to digital currencies, Kraken holds most of its reserves in cold wallets off of the network in order for them to remain safe from potential hacking attempts. It only holds enough digital assets in its connected, hot wallets as are needed for its everyday liquidation processes to be fulfilled.
In addition to that, for user accounts, it also offers added security features such as two-factor authentication and making sure that any login or password recovery attempts never result in exposing any users’ account information.
Furthermore, Kraken’s exchange servers and infrastructure also remain highly secure in a professional data center, eradicating any hacking attempts incurred by physical involvement.
Kraken was also one of the first digital asset exchanges to pass a Proof of Reserves Audit, which is a cryptographically verified process to determine if an exchange holds enough funds to execute a withdrawal request from all of its customers at once. This verifies that the exchange has been able to hold all of its customers’ funds without being compromised.
Kraken also ensures that all of its information remains encrypted wherever possible.
All of these security procedures make Kraken one of the most secure exchanges both from cyber and financial security perspectives.
Kraken Fee Structure
Kraken boasts one of the most economical fee structures amongst its competitors.
Apart from its fee from margins as mentioned in the section above, Kraken provides a comprehensive guide for its fee structure. Some of the points of calculation are provided below:
Trouble in Paradise
While all of the factors explained above would suggest that Kraken has been sailing smoothly, the unprecedented growth which the cryptocurrency industry witnessed last year made the exchange go through some tough times.
Said troubles ended up raising questions on the very credibility that Kraken established with the aforementioned efforts as well as the exchange’s level of service and its preparation of future infrastructure, or a lack thereof.
1. Growth for Trouble?
Last year, Kraken found itself in hot waters all by the simple situation of welcoming more customers in the wake of Bitcoin’s popularity.
Kraken’s customers faced numerous and repeated errors on the platform, which left many disheartened to the point where they simply vowed not to come back to the platform, while some of them went made grand claims intending to sue the cryptocurrency exchange for said outages.
The company rose to the occasion of fixing the ongoing issues by expanding its staff, with CEO Jesse Powell mentioning to Business Insider that the company is bringing in additional people so it could maintain the standards that it has set for itself.
“Development team growth has been part of our strategy all along. The increased volume has validated our hunch. The key to hiring though is to ensure we are preserving Kraken’s extremely high standards.” Powell stated at the time.
However, the outages that had been going on since the past few months at the time continued well into the next few months as well, getting to the point where the exchange’s customers had practically nothing else to discuss amongst them then the issues that they were facing each time they tried logging into the platform.
One post on Reddit in December 2017 was simply titled “Why isn’t Kraken being class action sued into oblivion?”
“They certainly deserve to be. Now it isn’t even possible to login, let alone trade or withdraw funds. This is insane!” The poster, with the handle ‘arganam’ mentioned.
The comments presented below show the state that consumers found themselves in when seeking to use the services of Kraken.
Countless other posts like this one kept getting shared on various platforms during the month of December and well into the new year, with the issues still being faced and reported by at least one user every day.
The issues rose to the point where the exchange announced scheduled maintenance to resolve them for good.
However, that action went south and resulted in Kraken’s operations simply stopping altogether, creating panic among its users at the time, which received widespread attention simply due to the sense of ambiguity that Kraken’s delayed communication created for the situation.
During the incident, Kraken stopped working at 12 PM on January 10, 2018. The plan to go offline for scheduled maintenance had been communicated to the customers beforehand, but the estimated time for the operations to be restored was provided as only a couple of hours.
However, even after hours had passed, the exchange did not restore its operations. Those hours then turned into a day, which ended up being two days, with no sufficient response being provided to the exchange’s customers, who, due to not even having a phone number or email address to reach out to, were left stranded and worried while tweeting at the exchange’s Twitter account to no avail.
Eventually, Kraken restored its operations but still faced issues even after three days had passed. It took hours after that for the exchange to actually resume trading, and even after a week, its margin trading services were not working properly.
Such issues have since died down, having occurred reportedly due to the increase in demand that was coupled with multiple hacking attempts like the distributed denial of service (DDoS) attacks that Kraken endured through last year.
2. Poor Customer Service
The biggest problem that this whole debacle created for Kraken was the panic and fear that spread through the community at thinking that the exchange might have fallen prey to hackers, all due to its staff just going dark for hours with no updates on live social channels.
This points to a very pressing issue for Kraken. Poor customer service and lack of communication. This matter is one extreme annoyance and the grinds the gears of many a customer, the exchange has listed no phone line, email, or live chat support to assist with consumers.
Consumers have to resort to an outdated ticketing system – which takes days before responding to a customer’s inquiry or complaint, creating more frustration than relief when the message is finally delivered.
3. Here Comes an Actual Lawsuit
Instead of questioning people like the Reddit post about why Kraken is not being sued, a few customers got together to go ahead and actually take the action themselves.
A Class Action Lawsuit was filed against Kraken pertaining to a flash crash incident in May 2017. The lawsuit, filed in July 2017, was commenced by the law firms of Silver Miller and Wites & Kapetan.
The plaintiffs pointed out that during the incident, a large sell order against ETH caused the cryptocurrency’s value to plummet, and at the same time, Kraken faced a DDoS attack on its server, resulting in its website going offline and trading to be suspended.
When Kraken restored its services, it kept trading suspended to reportedly ensure that everything was running safely and smoothly.
While trading remained inactive, Kraken went ahead and liquidated the Ethereum margins which it held at the time citing the low value of the cryptocurrency and how the margins needed to be liquidated to minimize losses for itself and its customers due to dealing in leverage.
However, the value of ETH restored after a while, and when trading resumed and the customers of those Ethereum margins went to check their data, they were frustrated to see that their margins had been liquidated by Kraken without any intimation.
The plaintiffs thus allege that by blocking them from accessing the trading platform during the flash crash, Kraken took an illicit decision of liquidating the margins by itself, which resulted in loss of funds for the plaintiffs.
Between the five plaintiffs, one of which was a U.S. citizen with the remaining belonging to the U.K. and Israel, more than 3,400 ETH were lost during the liquidation, which they allege was unfair on Kraken’s part.
However, while this incident was brought up to the community for discussion, one user had some passionate comments to share in favor of Kraken:
“There is a misconception that spot exchanges profit from liquidations. In fact, liquidations are very risky to lenders on spot exchanges.”- coinwatchman
“So, even if you can get past the ToS, you will not be able to show that Kraken profited. Kraken claims to have taken its own losses so it will appear to be a victim here as well. You might have a case against whoever initiated the DDoS (you’ll never find him) but if it can be shown that liquidations were already initiated at the exact time you magically decided on a Sunday afternoon to close your position, that as well is a long shot.” They mentioned further.
“The sad reality here is that somebody or some group pummeled the ETH/USD book and intentionally or not, broke the dam and you happened to be standing in the valley. You knew the dam was there when you moved in but the real estate was cheap and all your friends were getting in and what the hell, engineers can do their jobs and the government reviewed the plan, right? You accepted the risks that predictable but unexpected and rare natural events do occur. You are a victim of nature. The dam functioned as expected in the 10,000 year monsoon scenario. You have nobody to blame but yourself. That’s the game. Welcome to trading. I am sorry for your losses.” They concluded.
The lawsuit then went into arbitration and no information has come to light afterwards.
4. Amateurish App!
Those are not our words about Kraken’s iOS App, but of an actual user who also specifically mentioned that while they are against writing harsh reviews, Kraken’s app “definitely deserves one.”
Other choice words included “the worst app in history of time”, while another user pointed out to Kraken that “you’re likely to see your customers go elsewhere.” Kraken was further advised by the user that it should look into Coinbase’s app to prevent that from happening.
The truth remains that as compared to Coinbase, the app really does suck big time.
It takes more time to load than it should, it lags during its transition from screen to screen, and some of the features do not load properly to begin with.
If Kraken really wants its presence to be known in the U.S. and most importantly, if it really doesn’t want to be the easiest competitor to be gobbled up or knocked out by Coinbase, then it really needs to level up and work on its apps.
The app needs some serious improvement with a majority of 1 star reviews adorning its rating and tanking Kraken’s reputation at the moment.
Should Customers Go With Kraken Then?
After going through this detailed review that unearthed the ghosts of Kraken’s past and the threats to its future, you must be thinking if Kraken, with its slew of features but an equally scary portfolio of flaws is the right digital asset exchange for you.
There is no “right” answer to this, significant impediments to a quality user experience is present in customer service and ease of use. If Kraken is able to improve upon these flaws it can definitely stay competitive.
Customer service issues are not exclusive to Kraken but many players in cryptocurrency industry, Coinbase and others too, have gone through similar issues very recently. Coinbase responded to their customer service troubles by hiring a high level exec from Twitter to mend the deck of the sinking ship that is its customer service. Kraken must address
As far as legal troubles are concerned, Coinbase has been named the defendant in not one but two class action lawsuits very recently.
This goes on to show that if your action of looking for trading elsewhere is motivated by these two factors, then you may not have much luck.
The same goes for other features as well.
Once again, take Coinbase’s example. It has a very user friendly app, but its fee is higher because it provides ease of use and additional features to its customers. On the other hand, it only provides a total of 5 cryptocurrencies to trade from, namely Bitcoin, Litecoin, Ethereum, Bitcoin Cash and Ethereum Classic.
The same goes with the Gemini exchange, which offers services that have kept its customers satisfied but which only offers trading with 2 cryptocurrencies at the moment.
Whereas, Kraken has an app that sucks but it is currently offering a very nominal fee with around 17 cryptocurrencies to trade from, with additional features for experienced traders.
This brings us back to the same question, does it not? Is Kraken Good for Trading?
To answer it simply: yes. While it has its issues, Kraken remains one of the topmost platforms for cryptocurrency trading within the U.S. and for several other countries.
That being said, if Kraken sticks to its conventional ways and keeps on boasting about being “the largest Bitcoin exchange in Euro volume and liquidity” without doing much to improve its customer service and its app for both iOS and Android, then it might not be able to cling to that distinction as competitors eat up it’s market share.
We hope we helped to shed more light on the Kraken exchange, its strengths, drawbacks and potential for use.