Topic: What are the problemes of crypto currency exchanges? (Read 309 times)

But you're using banknotes used by drug dealers previously, it doesn't look annoying to you. Double standard?
The banks have a very strong KYC policy but yet they can't stop money laundering, so what? Oh they even encourage and help individuals and companies to launder money

@OP point on when an exchange is hacked the funds are not guaranteed, as banks do.

Ok, but one of the first things you say about BTC to someone is to tell them that payments are irreversible. It is, therefore, the responsibility of the user. When we say "Be your own bank". There are also the responsibilities that go with it. If someone can't take them on, maybe they shouldn't join the crypto world.

These are the main things I worry about with exchanges that aren't regulated by any government.  The reason I trusted Circle and still trust Coinbase (even though I don't use them) not to claim they got hacked and then run away with everything is because of government oversight and regulation.

Exchanges like Yobit?  Who the hell knows what keeps them in business.  They could easily pull a Cryptsy exit scam, and I doubt the Russian government would lift a finger to help anyone--in fact, I'm pretty sure of that.

Thus the biggest issue I have with exchanges is that of their trustworthiness, and every time I use an exchange like Yobit or one of the instant exchanges like Flyp.me, Changelly, and so on, I feel like I'm rolling the dice with my money.  Certainly if the transaction doesn't go right I've got no one to complain to.  It's crazy that 10 years after bitcoin was created we're still in the wild west where exchanges are basically unregulated.

I would now class IDEX as almost fully centralized. They used to be a hybrid, in that you still had to deposit your coins (albeit to a smart contract rather than a wallet), but you could still do so anonymously and without KYC. Now with their recent implementation of KYC, there are few differences between a fully centralized exchange - you still have to give up your privacy and you still have to give up control of your coins.

As OSS mentioned above, Bisq fits the bill of being open source, entirely peer-to-peer trading, and never touching your coins. I've had a few experiences with using it, and it has (thus far) been smooth and free from any issues. It's biggest issue at the moment is lack of liquidity compared to centralized exchanges, but I'm hoping that changes in the months to come.

Governments trying to shut down a DAO would be akin to governments trying to shutdown bitcoin. Its decentralization, by nature, makes it censorship resistance. Bisq have a good document explaining it here: https://docs.bisq.network/user-dao-intro.html

If done right, that shouldn't be a problem. Take Bisq as an example... no coins held by the developers, users have full control over private keys, no company headquarters, fully P2P and decentralized (no one in charge) and personally, in this case, I don't see how the government could pressure them to enforce KYC/AML.

Unless there is a good KYC implementation, fully decentralized exchanges should and will never be allowed by governments due to AML reasons.

You can not expect to trade coins with people that are involved with child pornography, terrorism etc.

As I said previously, DEX's are fairly new in crypto and are still a buzzword for investors. Idex is potentially a decentralized exchange, but it also has centralized elements which make it something classified as a hybrid exchange. A purely decentralized exchange would need to be open source so any developer will be able to verify the code, and the exchange would have to never be involved with user funds - the exchange would only be a platform for 2 users to find each other, and the 2 users will send transactions to each other, with no middleman. Unfortunately, this idea of decentralized is still very new and I am still yet to find a fully decentralized option that is reputable and useable.

A prime example of how garbage an exchange can be. Centralization of exchanges allows ventures like Yobit to flourish, where the majority of their profits are from confiscation of user funds and running scam/fake IEOS for themselves. I agree with you, Binance and other exchanges are far from this, but that sets one of the worst examples of a centralized exchange.

Lets say 60-40% between honest owners to greedy ones even into those reputable exchangers we cant still be sure that they arent making any anomalies or shady transactions behind.
Dishonesty and greed is one of the most common problems next to security vulnerabilities.They know they can be rich in an instant if they do tend to steal all its users funds or ran away with it.

Hi guys, I am one of the GM's of Nova Exchange.
Nova Exchange is owned by Goobit AB, which also runs BT.CX since 2012. We are early adopters of Bitcoin and Blockchain as a technology.

That was for the marketing part of our exchange...

I would like however to throw my insights, from what I am hearing, and observing, as an individual that works in an exchange...

By all means, I am not much more an expert than you are, so what I am about to write below, does not certainly apply to everyone, as in overall, I believe that the industry is much more secure and healthy today than from what it was 1 or 2 years ago.

First of all, let me say that this thread is a very nice initiative, and I hope that it has more reads, comments and insights from also other leaders in the space, not from a marketing perspective (I am the best and bla bla), but from an honest point of view, in order to bring the mainstream adoption that we are all looking for, and bring that adoption with a certain level of awareness and responsibility...


From my perspective, the reason that yet the industry is involved with many scammers and hacks, is due to a couple of things, however, the main reason, I believe, has to do with....

• "personal development" / owners of the exchange
• the values of the organization behind it
• and the developers of the exchange.

I have noticed, that scammers have no ethical values, their development is made in a quick way (1-5 months) only for the "eyes" of the public (focusing on the interface of it so that traders like it).... Then they spend a couple of Bitcoins on marketing, they hire fake volume bots, and once there is a certain amount of traders/real volume gathered, they disappear with the funds. All this must happen within a short period of time in order for authorities to not react and catch them, so where there is too much of a buzz, be sure to question well!.

I personally, in many Bitcoin meetups, heard crypto exchange owners from 2015-17, "pleasing" themselves that they coded alone a crypto exchange within 3-5 months.
But can u trust your money to a code that has been developed for such amount of time? Especially when there was NO BACKGROUND or experience at all (how many exchanges these guys have previously coded in order to "master" the prototype??).

Almost no-one had coded an exchange before Bitcoin era, and the ones that did, worked for banks, nasdaq, NYSE, LSE etc...

Exchanges are complex by nature, and they require a huge amount of time and a large team behind them (serious, smart and GOOD developers, good management, even greater lawyers, and lastly, marketing), in order to be competent and to at least stand up on their feet.  

I would personally, before trusting my money on an exchange, check the team behind it.
Who are the owners that are managing my hard-earned funds?
Then I would contact the exchange by sending an email to their support, asking some basic questions, see how the reply looks like, get a basic feeling of it.

Then GOOGLE the exchange, and try to find as much data as possible (is the exchange organic, does it have real users?)

Lastly, it is illegal for someone to promise you profit because in the money game there is no guarantee. So if someone promises that you will win money by giving him money... stay away!

Where I would personally trade?

Only at exchanges that require KYC (and I am being serious here, despite I value the anonymity that crypto is all about, and if someone wants to "illegally" trade funds, then he should not blame the exchange the illegally exit scammed him)!
The reason for that, is because KYC brings a level of security and protection, as the exchange knows who traded what, there is no wash trading behind it, and hackers stay away from such exchanges...

Exchanges that require KYC, are trying to become fully regulated and clean (if not already). Also, if an exchange has at least a KYC requirement above a certain level, it means that it spent money for verification, something that an exit scammer would most probably never do, as it will involve him with much paperwork and time, that a scammer would by nature want to avoid.

I would also suggest, to NEVER keep all your funds in exchanges, but only the funds that someone will be trading with, and that should only be a small portion of what someone is holding. This because:

YOUR KEYS = YOUR MONEY! NOT YOUR KEYS = NOT YOUR MONEY!

I believe the biggest problem is the lack of honesty and greed of the owners of the exchanges.

let's take an example of yobit and let's go back in time:

January 05, 2015, 05:13:19 PM

YoBit.Net - CRYPTOCURRENCY EXCHANGE & MultiCoin DICE - Free Coins every 1-24 hrs

see that @YoBit was very active in the forum, do you know why he was very active in the forum? because he probably didn't have many clients and nobody knew about yobit. But when many people started using yobit, he began to see that he was making money, he became arrogant and a big greedy dishonest and scammer. As I said: The biggest problem is the owners of the exchanges who are dishonest and greedy. Honestly, these exchanges are not reliable... I like binance, but I wouldn't trust much money in these exchanges

I believe there are sites where exchanges get rated and their faults are showcased to the public. Cointelligence has a section dedicated to exchanges, rating them and also commenting on their level of security. Based on Cointelligence, the top 5 exchanges (from first to 5th) are Liquid (Qoine), Gemini, Gibraltar Blockchain Exchange, OKex and Kraken. I personally have no used the first 3, but Okex and Kraken are great choices.

If you are scared of losing coins to exchanges, services like shapeshift and DEX always exists. Keep in mind, a common misconception is that Idex is a DEX, while it's more of a hybrid exchange because they utilize smart contracts and you still need to send them coins.

Most of them are open source and have been verified by other users. Their exchange is built in a way that they literally can not touch your coins while you are trading.

If you're trading through a website then it has already proved itself not to be decentralised. It may not be custodial but the potential is there for the site to be spoofed or hijacked and off your money goes into the ether.

As for exchanges themselves I'd never use one for significant amounts. I would seek out OTC options where you get a live person assigned to you rather than winding up as a ticket number.

Take a look at NebliDex. It is open source and anyone can verify the code logic of how the exchange works.

So I want to ask another question. If there is a decentralized exchange: user friendly and easy to use. How can it prove that is it really decentralized? How can you say that 'okay this is really decentralized and I am secure here.'?

Are you blockchain developer? If not, how can believe a person to this?

I've been trading daily for years, except when I couldn't find anything to trade, or when I didn't have time to look for something, and I was lending my money at those times. But after what Poloniex did (see my signature), I'm not so comfortable, and I've moved some of my coins to my own wallet. Where it just sits without giving me any interest. So I'm always looking for new ways to trade or lend...

I guess we could get some kind of a rating system for exchanges. A bit like the "trusted Seller" logo they have on Ebay.

with mt gox, there's some pretty strong evidence that alexander vinnik and btc-e were involved in the theft.


coinbase has an insurance policy that covers its online storage. like binance, they can cover a hack like the one that occurred in may. as for other exchanges, you're right.


don't store funds on exchanges. use them to trade and then withdraw immediately -- minimize the time you're exposed to third party risk. do some due diligence on an exchange before using it. you could also consider trading p2p instead.

You can never be 100% safe using a centralized exchange. By definition, your coins at some point have to be under their control, and therefore you are exposed to risks of hacks, exit scams, shutting down, freezing your accounts, and all the rest of it. You can lessen this risk by only sending coins to an exchange when you are ready to trade, and withdrawing them immediately once the trade is complete. You would also do well to avoid new and smaller exchanges, and stick to the big players such as Binance. Although you can still lose your coins with big exchanges (Mt Gox for example), the number of small exchanges which are hacked or scam their users is much higher.

The only way to avoid the risks associated with centralized exchanges is to trade peer to peer. Doing so, however, exposes you to the risk of trading with a malicious third party. There are platforms such as Paxful and Bisq which will link you with a third party and act as the escrow to try to ensure a smooth deal.

I would not say that they have a big influence over investors. All they have is a lot of control over investor funds, that is all. But all of these risks are present there whenever you use an exchange.

Especially with hacks. You are essentially constantly trusting the exchange itself to produce accurate figures, and not misappropriate funds in an event of a publicly announced hack. Without regulations, you'd be looking at the users copping all of the losses if the exchange administration is not honest.


I think that the key to using exchanges securely is never be comfortable.

Don't get complacent with your funds on an exchange, just because they may have a good reputation and/or you've had it on there for a long time without any issues. You mention Binance as if it is some sort of model organization, but I would not even be comfortable with them holding my funds in the long term.

In regards to decentralized exchanges, I think that right now it's still a buzzword with no real adoption/real life usage, apart from potentially Idex. Unless they are able to tackle fiat <-> BTC transactions head on, mainstream adoption may be hard to get.

At this point in time, exchanges are still on the grey area of the playing field somehow, even though a lot of eyes in the government are already looking at its direction. We see Mt. Gox paying its creditors years after the event happened, so that's somewhat a good thing knowing that legal proceedings still help people who are victims of hacks due to poor security on exchanges or just the plain old scamming people technique. One thing's for certain: regulations need to be defined thoroughly on exchanges for customers to at least get some form of protection from all the sorts of uneventful things happening on exchanges.


I normally just deposit funds and withdraw immediately if the trade is complete. I don't let my funds sit for more than 48 hours on an exchange no matter how reputable it may be. I'm not taking chances knowing how many hacks are going on recently.


Centralized exchanges are still going to be the favorable platforms given their volume and the sheer weight of resources and investors they can carry. There are lots of promising things on DEXes though without proper support from the community, those wouldn't materialize and wouldn't progress. I'm kinda wanting a good DEX to try my hand on though there are some but with little to no volume on them yet.

Fact!

We can really differentiate the interest between centralized and decentralized exchangers when it comes to liquidity.
People dont mind too much or too serious to the word "privacy" yet they do rather likes to be convenient.Who doesnt like to engage without having any headaches?
For sure none people would refuse to that.

Lightning Network and Atomic swaps should fix that and make centralized exchanges not needed, at least, for crypto to crypto trades. The main problems with decentralized as we have them currently are liquidity and also them not being that newbie friendly or easy to use. But the reality is that people, prefer convenience over security/safety and unless we change that mindset, no changes are going to happen.