Several Bitcoin traders are doubting the credibility of Bitcoin exchanges as they become magnets and susceptible to frauds and hacks.
Several businessmen have suffered losses when trading for Bitcoin and other cryptocurrencies in online exchanges as of late September 2017. Among the investors who were victimized are Dan Wasyluk and his colleagues.
According to Wasyluk, they lost 750 Bitcoin, which are worth around $3 mln at current prices, at a company operating a virtual currency exchange called Moolah. He further added that there is little chance that they will recover their money.
“It really was kind of a kneecapping of the project. If you are starting an exchange and you lose clients’ money, you or your company should be 100 percent accountable for that loss. And right now there is nothing like that in place.”
Why are cryptocurrencies risky?
- 45 percent of exchanges fail, according to study
- Risk is not with Bitcoin in itself, but with where they’re being kept (i.e exchanges or digital wallets) which are both susceptible to hacking
- There have been at least three dozen heists of cryptocurrency exchanges since 2011, with Mt.Gox being the largest reported so far
- More than 980,000 Bitcoin have been stolen, which today would be worth about $4 bln.
- On May 7, traders on a US exchange called Kraken lost more than $5 mln
- Many ICOs fail to comply with SEC regulatory requirements
- Only a few countries such as Japan have given license cryptocurrency exchange platforms, which means other exchanges are not ‘liable’ for any loss
- Of the 18 exchanges that closed, only 11 have evidence of the customers having been reimbursed. Five exchanges have not reimbursed customers while six claims to have done so.
According to Reuters, trading of digital currencies has been dogged by doubts lately. Investor worries were mainly focused on the phenomenal gains in value posted by the different virtual currencies, as well as the possibility of painful price crashes. The online exchanges where the cryptocurrencies are purchased, sold, and stored have turned into magnets for fraud and mires of technological dysfunction.
New York University’s Stern School of Business finance department chairperson, David L. Yermack, has claimed that consumers have no sufficient protection for investing in digital currencies.
“These are new assets. No one really knows what to make of them. If you’re a consumer, there’s nothing to protect you.”
Meanwhile, regulators and governments around the world are still unsure on how to effectively handle the virtual currencies, and they continue to debate on the issue. A number of banks are also wary of the digital currency exchanges and some have avoided dealing with them.
Yermack, however, reiterated that there is a need for the US Congress to take action to resolve the issue.
Private wallets to the rescue?
With such growing problems, EXMO, a Europe-based cryptocurrency exchange with over 630,000 registered users, aims to tackle such issues. A company rep shares:
“There has been plenty of ICOs today, most of them are for non-existing products. Hence, users are increasingly cautious of scam. We are raising funds through EXMO Coin (EXO) token sale to add a Margin Loan service to the exchange platform – this will allow traders to earn more on currency fluctuations by borrowing extra funds.”
As the saying goes, if you don’t own the private keys, it’s not yours. Many hodlers actually prefer to keep their own cryptocurrencies native wallet options instead of risking them on exchanges especially those for those who are not actively trading.
Where are the regulatory bodies?
While SEC has been clamping down on ICO scams and just recently set up a cybersecurity group to tackle cyber-based threats, it does not necessarily cover issues involving exchanges as we’ve seen with various investors who lost their money with allegedly hacking of Mt. Gox. In fact, another Poland-based exchange disappeared in the same manner as Mt. Gox, and governments around the globe are yet to explore possible options to better protect consumers from such cases.
