The hidden risks behind the exchange platform

Although the basic principle of cryptocurrencies is decentralization, the industry itself suffers from centralization. This is frequently demonstrated by security incidents affecting exchange platforms.

The lack of decentralization of these companies has often brought serious harm not only to the customers, but to the industry as a whole.

As the adoption of cryptocurrencies increases, the demand for “safe” and regulated companies increases. Most crypto users enter the market through large, well-known platforms, risking their data and funding security for a user-friendly interface.

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In many cases, the feeling of secrecy is given by the fact that the representatives of these companies are known figures. Also, the business model is easy to adopt because it resembles that of a traditional financial institution. Few are aware of the risks associated with such centralized entities.

The hidden risks behind the exchange platform

Two recent examples demonstrate the risks hidden behind the exchange platform QuadrigaCX and IDEX.

QuadrigaCX CEO Gerald Cotten passed away in December 2018 and was the only one with access to the cold wallet that holds most of the company’s funds. This led to the loss of over $ 150 million in investor funds and the closure of the platform. 115,000 users are still trying to recover lost cryptocurrencies.

A similar case is the Chinese IDAX exchange – its CEO disappeared on November 26 following police raids. The company no longer has access to offline wallets and is currently trying to find a solution.

Although these are extreme examples, almost every cryptocurrency exchange is guilty of centralization. “If you don’t control private keys, don’t control cryptocurrencies” is one of the catchphrases to keep in mind when it comes to this industry.

Alternatively, opt for a platform that has an insurance system in case of theft or security incidents. Make sure you keep only the funds you trade with on the exchange and be interested if the platform uses back-up systems. One of the lessons any crypto user needs to learn is that he is responsible for his own funds.