Forewarned is forearmed: top-5 ways of losing money on a cryptocurrency exchange service

“Where to buy cryptocurrency” has been a common search query on the web for several years now. Those who seek find dozens, if not hundreds of online exchangers that promise secure purchase and sale of cryptocurrency. However, such transactions hold many pitfalls.

Certainly, the most “civilized” way is to go to a cryptocurrency exchange. But it can get a little too complicated if what you need is a simple transaction right here and right now. You’ll probably be discouraged by the complex and time-consuming registration and identification procedures, as well as a multi-stage transaction that can become a real challenge for inexperienced cryptocurrency owners.

That’s why users often turn to cryptocurrency exchange platforms that sell (or buy) cryptocurrency within half an hour at the most (and that including KYC — know your customer, identity verification procedure), and at a more appealing rate. There are hundreds and thousands of such websites, and some of them get blacklisted every day either because of vulnerability to scammers or because the website itself is a scam. In addition, there’s always a risk of having your bank card blocked and funds frozen after receiving the “dirty money”.

Most often, it’s the users of P2P cryptocurrency exchange platforms who become victims of scams and have problems with banks. Let’s look at five key risks for users.

Canceled bank transfer

On P2P exchanges, users place ads offering to buy or sell cryptocurrency on their conditions. All you have to do is to choose the counterparty and payment method, and that would seemingly be it. However, a bank transfer can be canceled, while a cryptocurrency transfer is known to be impossible to cancel. As a result, the user receives proof (e.g. a screenshot) that the funds were transferred and sends their cryptocurrency to the addressee. But the funds never arrive to the account.

Considering that P2P platforms are not regulated, and often act outside the law, it will be difficult to defend your rights in this case.

Dubious origin

A counterparty who’s getting rid of dirty fiat money can be a subject of an investigation by a bank. And it’s very easy to come across such characters on P2P platforms and other over-the-counter exchanges. In case of suspicion, the recipient’s bank card will also be frozen until the circumstances are clarified.

In addition, if the buyer of cryptocurrency later decides to trade on cryptocurrency exchanges, they will have to deal with organizations that are committed to security and lawfulness, and they always check the origin of cryptocurrency. Naturally, in case of a private transaction, it can be difficult to explain where the bitcoins come from.

Fake exchange platforms

Users may encounter innocent-looking websites posing as legitimate exchanges. They bait customers with appealing rates. After receiving transfers from several would-be clients, the exchanger eventually ends up blacklisted in various ratings and reviews. But the offender has accomplished their mission — obtained the money — so the brand of a scammer doesn’t particularly bother them, they just create a new fake website based on the previous one.

Hacked accounts

With P2P exchange, there is always a risk of having your account hacked: for example, an offender can spoof the address for receiving the cryptocurrency. Accounts of established and trusted clients can be cloned, and their loyal counterparties will transfer the funds to the scammer’s wallet.

Attention test

When working with most exchange platforms, users should never let their guard down. There are countless scam methods that exploit the victim’s carelessness. For instance, having agreed on the amount with the cryptocurrency buyer, the seller receives seemingly the correct sum of money, and in turn fulfills their obligation, only to find that they received $1.000 instead of $1,000. The difference between a comma and a dot may be hard to notice at first, but different countries and languages use different decimal and group separators, and 1,000 means just 1 in some countries.

To avoid these risk factors, it’s important to carefully choose the exchange service and forget about P2P platforms altogether. The key indicator to look for is whether the exchange platform is regulated in any jurisdiction. If the service is regulated, especially in Europe or the USA, this is a guarantee that the company will not run away with your money.

One such example is the cryptocurrency exchanger, registered in Estonia and licensed to operate with cryptocurrencies

An example is the cryptocurrency exchange, registered in Estonia and licensed to operate with cryptocurrency. The cryptocurrency is sold under a formal contract, which can be produced at the request of cryptocurrency exchanges to show the source of the user’s cryptocurrency. And since the transfer of fiat money is conducted through acquiring, the sender’s bank will have no questions about where the money went.

Other indicators of an exchanger’s reliability that always accompany a regulated service are KYC and AML (Anti Money Laundry). It may take a few minutes to register on the website and identify yourself for the website, but this is a sure sign that the service follows the requirements of financial institutions and the regulator.

If you nevertheless decide to go to a P2P platform, the obvious advice is to double-check everything several times, be meticulous and suspicious, and not exchange large amounts immediately.

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