How to Identify Scam Cryptocurrency Exchanges and Stay Away From Them

Cryptocurrency exchanges have been around almost as long as the introduction of bitcoin in 2008. Infact, as far back as 2004, Australian Authorities forced about three digital currency exchanges to shut down due to regulatory issues.

What is a Cryptocurrency Exchange?

A cryptocurrency exchange or a digital currency exchange (DCE) is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies.

A cryptocurrency exchange can be a market maker that typically takes the bid-ask spreads as a transaction commission for is service or, as a matching platform, simply charges fees. With recent advances in technology, most cryptocurrency exchanges are currently operated online. As of today, three major types of Cryptocurrency exchange exist viz:

• Centralized Exchanges
• Decentralized Exchanges and;
• Hybrid Exchanges

Features of Cryptocurrency Exchanges

The centralized exchanges serve as middle men or third party in cryptocurrency transactions and they make their profits by charging a commission which differs from one exchange to the other. Major feature of centralized exchange includes Identity profiling involving Know-your-Customer (KYC) and the central safekeeping of assets and private keys to mention a few.

Decentralized exchanges encourage direct peer to peer exchange by linking sellers and traders together and charging a service fee which diver from one exchange to the other. With decentralized exchanges, you get to save your private keys, keep your profile anonymous and make direct exchange based on requests. Decentralized exchanges are said to be pushing for a paradigm shift in making the cryptosphere truly anonymous.

Hybrid exchanges combine the features of both centralized and decentralized exchanges and bridges the gaps between the pros and cons of the two system.

Emergence of Scam Cryptocurrency Exchanges

With the general push for financial autonomy that cryptocurrencies and the cryptosphere in general is engineering, many wannabes are taking advantage of people’s desperation, gullibility and unawareness to rob people of their hard-earned money.

Over the years, many scams have been associated with Bitcoin and most cryptocurrencies and this scams usually involve cryptocurrency trading platforms.

Identifying Scam Exchanges

A typical scam cryptocurrency exchange would have the following features;

Emergence:

When an exchange spring up right from the sky, there is every likelihood that it is a scam. Many scam Initial Coin Offerings (ICOs) always create a phony exchange to further perpetrate their fraud.

Anonymous Team Members:

transparency on the part of the developers of a particular exchange goes a long way in breeding trust. Most of the time, the identity of scam cryptocurrency exchanges is always hidden.

No one would have an idea who the founder is, where they are based and other correspondence address. This way, fraud can easily be escaped.

Lack of communication channel:

Most time, the scam exchanges would have no avenue where investors or users of their platforms can actively interact with them.

They may however create a social media page such as telegram channels where they pass announcements but responsiveness would be a dark word

Copied Project/Whitepaper:

Most genuine exchanges always have their own coin or token and they always take their time to develop a comprehensive and insightful whitepaper which scam exchanges have no luxury of. Scam cryptocurrency exchanges can stretch as far as cloning a particular website of an existing project but choose a different domain name.

Long maintenance duration:

For existing exchanges, shutting down of the website can cause many investors to lose a lot of money. Most time, this temporary shutdown can become permanent.

Conclusion

It must be noted that not all cryptocurrency exchanges start out as scams but many refuses to upgrade and or meet regulatory guidelines and instead, tend to make away with investors assets. Cryptocurrency exchange scams is most common in centralized exchanges where there is a central account money is paid into.

This serves as a basis to cart away with funds at any time. Many established centralized exchanges such as Coinbase, Binance etc. have established trust borne out of strict adherence to trading regulations and has thus built trust over the years. When you see these signs as well as many other inconsistencies in the administration of any cryptocurrency exchange, its well advised to stay away from them.

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