On Tuesday, Eric Scheiderman Attorney General New York disclosed that he is inspecting at least 13 cryptocurrency exchanges which include well-known exchange called Coinbase. He added that “Too often consumers don’t have basic facts they need to assess the fairness, integrity, and security of these trading platforms”.
Further Scheiderman says he hopes to make exchanges more accountable and transparent to their clients. Each company will be asked in a letter to supply information on its “operations, internal controls, and safeguards to protect customer assets”.
The news is as the gesture which investing in cryptocurrencies is risky not only because they are new crypto exchanges. The value of these exchanges is volatile and people suspect the foul game.
As per the report, there are 190 exchanges in operation that pop up every day. Several exchanges don’t run under any rules and regulations. The obligation replacing the policy of digital money losing its value and get lost, stolen or hacked. Mt. Gox, the first crypto exchange also ended in bankruptcy.
How does an exchange work?
First, investors sign up with an online exchange utilizing their bank account, credit card or digital currency. The trade of cryptocurrencies is executed without any third party because it is operated on decentralized platforms.
Few experts state that some exchanges bring more risk than others. Here are few rules to keep in mind before investing in cryptocurrencies.
- Cryptocurrencies are volatile in nature. Ex: – In December, bitcoin was trading at $19,000, As of Wednesday, it was at $8,116. The IRS has labeled these currencies as a property that means every transaction is recorded and taxed at capital gains rate.
- According to an expert, if the investor is from the United States, he must be wise to pick an exchange based in the United States. He must find the location of the company and move forward.
- Emin Gun Sirer, an associate professor at Cornell University says if an investor doesn’t know the address of a company, it is difficult to trace the people when his money is been hacked or stolen.
- A Google search engine can trend up with results that have potential problems. For instance, when investors search “Bitfinex hack” he will find a Wikipedia page that is dedicated to the event. The investor must speak to other users of an exchange and instigate about the exchange.”
- Online forums have become a magnet for cryptocurrency exchange. Timothy Tam, Co-founder and CEO of CoinFi says “There are a lot of exchanges that have been hacked”. He further adds that make sure the exchange keeps the majority of its assets offline. At least 95 percent of the exchange assets should be offline. For example, this keeps 98 percent of its customer’s funds off the internet.
- Experts state that Cryptocurrency exchanges should follow KYC “Know your consumer” and AML “anti-money laundering procedures. The theme is designed to reduce the risk of illegal or fraudulent activity by registering customer’s identity.Gun Sirer asserts that “If it’s really easy to open an account, and it’s really easy to shield your cryptocurrencies from the IRS, then it’s going to be just as difficult to get your money back when things go south”.
Overall, investors and users must securely exchange their transactions. The user must pick up an exchange with high volume. The high volume tends to lead to higher price accuracy. The users must protect themselves from fraudulent activities which take place in daily lives.