Cryptocurrency traders are gradually realizing that choosing a trading platform is just as risky as choosing a cryptocurrency or target price.
This year, investors lost more than 700 million dollars due to the hacking of two large cryptocurrency exchanges: Italian BitGrail and Japanese Coincheck. In total, according to estimates of the Wall Street Journal, since 2014, investors have lost about 1,4 billion dollars. \
Hacks reflect the often ignored risk associated with trading in Bitcoin (Bitcoin) and other digital currencies: despite the fact that in the past two years, against the background of a growing crypto market, dozens of online exchanges have appeared, they usually have little resemblance to well-funded and regulated sites where investors buy and sell stocks, bonds and commodities.
Given the decentralized nature of cryptocurrency, investors do not need to go to the exchange to buy these assets. However, many turn to them, because the exchanges seem to them more secure and convenient. Some have to regret their choice.
Jeff Furman, a 22-year-old student at Northern Virginia Community College, told the publication that he lost $ 60 worth of Nano tokens in February due to the BitGrail hack. He sold a few Nano tokens for a profit, but now thinks he should have sold everything. Unlike traditional stock and futures exchanges, whose business is to match a buyer and seller for a small commission, crypto exchanges also guard investors' virtual tokens. And many do not cope with this task.
“As the cryptocurrency market grew, hackers began to hunt for digital wallets” and crypto exchanges,” said George Waller, a consultant at security firm BlockSafe Technologies Inc. Digital wallet companies often operate as cryptocurrency brokers and work closely with exchanges.
The last two hacks show the vulnerability that investors may face when buying unverified tokens on an unregulated start-up exchange, a significant part of the trading volume of which is accounted for by new, unchecked currencies.
The Coinmarketcap website tracks data from about 190 cryptobirth, but only a few are regulated.
The latter include exchanges such as GDAX, owned by Coinbase, Gemini, launched by Gemini Trust Co. as well as Japanese bitFlyer. All are regulated by the NYS Department of Financial Services, which requires exchanges to take action to detect and prevent fraud and market manipulation.
However, there is nothing that could force the cryptobirth to follow the rules, and many do not. Moreover, you can simply buy standardized software for trade, in this case, the exchange can only come up with a name and logo.
As a result, many new cryptobirds suffer from “trashy management and cheesy systems,” said David Fragalé, co-founder of security company Atonomi. According to him, experienced financial companies are implementing security monitoring, risk management and compliance monitoring systems.
However, in many small cryptobirds this does not happen, and retail investors put their money at risk associated with the exchanges themselves, said Jonathan Levin, executive director of research firm Coinanlysis. “People do not know how to protect themselves,” he said.
Many of the new cryptobirds - BitGrail was launched in 2017 year - rushed to make money in the fast-growing market using small-capitalized cryptocurrencies, which large cryptobirds simply do not work with, - said Charles Hayter, general director of the CryptoCompare research site.
Stock exchanges that trade in stocks, options or futures must comply with a number of standards relating to access rights, cyber security and other regulatory areas. They also work closely with tightly regulated banks or brokerage firms that regularly reimburse customers for damages caused by hacks or technical problems.
BitGrail, worked without any serious supervision. She focused on the Nano, a crypto-currency that is small in capitalization, which began to trade in the 2015 year and by the end of January 2018 was called Raiblocks. For most of their history, the Raiblocks were worth pennies. In December, 2017-th their price increased from about $ 0,2 to $ 36. Now it costs about $ 11.
Coincheck applied to the Japanese regulators for a license to work as a crypto-exchange. She recently said she plans to pay compensation to her clients. A spokesman for the exchange said last week that the exchange was “finalizing” the decision to return money to affected customers.
She also noted that customers do not have to deposit their money on an account on the stock exchange, for investing in cryptocurrency. Of course, when organized trading floors began to appear, they seemed to add some kind of protection and an institutional element to the emerging market. One of the first such sites was opened in 2010-m Mt. Gox. Over the course of several years, it accounted for about 70% of bitcoin transactions worldwide.
However, there were very weak security protocols on the cryptobirth website. In 2014, she announced the theft of 850 000 bitcoins. Then their cost was 450 million dollars. Later, a cryptographic exchange was able to return 200 000 bitcoins, which today are much more expensive than in 2014 year. Customers still require a refund.