How Do Unregulated Crypto Exchanges Grow?
Since the launch of Bitcoin in 2009, the world of cryptocurrencies has experienced incredible growth, while regulations have lagged behind technological advancements, which is common with new technologies. This unregulated environment has allowed for innovation, but it has also opened up space for fraud with legitimate projects. The advancement of blockchain technology has spurred interest in new financial products such as NFTs and DeFi platforms. Without regulatory obstacles, developers were free to experiment and bring new ideas to market. Many retail investors did not fully understand the risks, attracted by the potential for quick and big profits. Meanwhile, criminals like scammers have taken advantage of the anonymity of blockchain technology, contributing to the growth of the ecosystem. In this unregulated world, concerns about market manipulation, investor protection, and security were on the back burner, while unregulated platforms attracted traders with lower fees, anonymous trading, and easy registration. On the other hand, regulated platforms require more administrative work and often charge higher fees for regulatory compliance.
Fun fact: Thefts on crypto exchanges decreased in 2023, and stolen funds fell from $3.7 billion in 2022 to $1.7 billion. Nevertheless, the value of these thefts increased in 2024 due to the rise in the prices of digital assets.
Source: cointelegraph
How to spot unregulated crypto platforms?
To identify unregulated crypto platforms, look out for key warning signs that may indicate that the platform is unregulated and potentially unsafe:
- Lack of licenses and regulation: One of the clearest indicators of unregulated platforms is the lack of proper licenses or permits. Legitimate crypto platforms are typically regulated by financial authorities to ensure compliance with legal standards and consumer protection. Without regulation, the risk of fraud increases significantly.
- Poor or non-existent customer support: The way the platform manages customer support says a lot about its reliability. Reputable platforms offer various contact methods, such as live chat, email, or phone support. If the platform is slow to respond or support is non-existent, that’s a bad sign.
- Promises of unrealistically high returns: If a platform promises incredibly high returns in the short term, it’s likely a scam. Scammers often lure people with such promises and then disappear with the money. For example, PlusToken is a project that promised investors returns of 10–30%, but eventually disappeared.
- Pyramid schemes disguised as referral schemes: Pyramid schemes depend on a constant influx of new users, and when that influx dries up, the entire system collapses, leaving the last participants with heavy losses. Ruya Ignatova launched the OneCoin pyramid scheme and defrauded victims of more than $4 billion.
- Absence of KYC requirements: Legitimate platforms require user verification (KYC) to prevent fraud. If the platform skips this step, it’s likely hiding something. In addition, without KYC, it is much more difficult to recover funds if something goes wrong.
- Bad reviews: Check reviews and user feedback online. Platforms with bad reviews or numerous complaints on forums like Reddit often have hidden problems. These reviews can provide you with insights into other users’ experiences and highlight possible flaws in the platform.
Source: cointelegraph
How to Assess the Security of Crypto Exchanges?
When choosing a crypto platform, security should be a priority. Here are the key safety features to look out for:
- Two-Factor Authentication (2FA): This feature adds an extra layer of security to your account. If the platform doesn’t offer 2FA or it’s difficult to set up, it can be a sign of risk.
- SSL Encryption: SSL encryption protects the data that is transmitted between your browser and the platform. Make sure there’s a padlock icon or “https://” at the beginning of the web address.
- Cold storage: Trusted platforms store most of their funds in cold wallets, which are offline and less susceptible to hacking. You can contact customer support or read the platform’s white paper to learn more about whether the exchange uses cold storage.
- Insurance and audits: The lack of insurance and independent audits is another warning sign. Reliable platforms often offer insurance against losses and are regularly audited by independent companies to ensure compliance with security standards.
Security is the foundation of any platform. Choose exchanges that invest in customer protection and transparency.
Source: cointelegraph
How to Avoid Risky Crypto Platforms?
The world of cryptocurrencies offers exciting opportunities, but working on unregulated platforms carries significant risks. Being informed, checking key security features and thorough analysis (due diligence) are key steps to avoid the traps that many fall into.
Before making a transaction on any platform, conduct detailed research. Only use crypto platforms that you can trust and take steps to keep your assets safe. With the right precautions, you can safely navigate the world of cryptocurrencies and enjoy its benefits without fear of fraud or losses. We hope you enjoyed this blog, and that you learned something new. If you have any questions or suggestions, you can always contact us on our social networks (Twitter, Instagram).
