06.08.2020
Centralized Cryptocurrency Exchange

What a centralized cryptocurrency exchange will make you: zero or hero?

Maybe you’re just beginning in the wild and wonderful world of crypto (congrats!). 

Maybe you’re a veteran trying to fool everyone into thinking you only have 1 BTC on a centralized exchange, which you declare for tax purposes, and in truth, you have thousands of them. You dark genius.

Maybe you’re running a centralized exchange and reading this to see what’s wrong with your competition and trying to fix all those problems in yours to get ahead. 

In any case, even though centralized exchanges have their problems, they are the foundation of the crypto world, many, many people use them, and so should you (even though you need to do it very wisely, otherwise there are huge risks). 

What you absolutely must read before using centralized cryptocurrency exchanges

Centralized exchanges are the gateway into the world of crypto where anything is possible, people are free, and dreams come true. No exaggeration! 

  1. Trading allows you to make hundreds a day with relatively small starting capital (which you can easily get your hands on). Even if you don’t have s starting capital, you can try demo tournaments and win real money. 
  2. At exchanges it’s common practice to buy currencies and HODL them. Keen on Bitcoin? Keeping up with the news and aware that more and more organizations are predicting it a $150 000+ future? Want to buy some for fiat and keep it? 
  3. Fascinated by gaming and just want to have fun trading and get kicks out of it?

In any scenario, to get access to crypto, the easiest, most fun, and safest way is using a crypto exchange. Registering takes very little time, some of them are safe (yay!), and if you don’t like one currency you can just exchange it to another. 

It may sound like a fanatical statement but if you truly get to know crypto as we know it, you’ll fall in love with it for a lifetime. 

What is a centralized cryptocurrency exchange?

The “centralized” part is the most important. Centralized exchanges, unlike decentralized exchanges, keep all the money in one place. There is a digital vault and some say it’s only a matter of time before someone comes over and helps themselves to users’ funds.

About the structure. Essentially, without going into Merkle trees and zero-knowledge proofs, exchanges are trusted parties that keep your crypto safe for you. 

Here’s an example of a centralized crypto exchange website (not to be confused with exchangers and converters and mixers!) that you can go to, quickly register, transfer your crypto to there, or buy some on the website, and then trade cryptocurrencies one for another, wait for them to start costing more, and sell them – it’s Forex in your pocket. There’s A LOT of money to be made. 

Loan sharks and killer whales

Hopefully you will be able to avoid loan sharks that peruse the beautiful deep blue sea of finance today by making enough money, and killer whales will consider your $100 a day trading sall fish. But there are far more dangerous creates in the world of crypto than these.

There are several things wrong with the idea of centralization. Cryptocurrency exchanges concentrate access to all the money in one place. This means every good hacker in the world right now is highly likely trying to open your exchange up. The rewards are hundreds of millions. 

Also, these companies store your private data like passwords, etc. Some exchanges will even ask you how much crypto you have, what you plan to do with it and submit your Social Security Number to them. Awesome. If someone gets access to that, that’s all they need to register 20 maxed out loans in your name in banks across the world. Don’t keep a lot of money on an exchange – and avoid KYC!

Therefore, you must remember, investor or beginner trader, if you’re choosing the least unsafe exchange (if you must go centralized) – that you make sure they take as little personal info as possible. 

If you only provide one email – purrfect. Use TOR to hide your tracks, and if you want to go Pro – check out Mimblewimble to stay completely invisible. That way your data and money will be as safe as possible. Which leads us to the next section.   

Centralized cryptocurrency exchanges: dangers 

This is a fascinatingly beautiful world, but it also comes with mastodon problems. Traditional banking will rob you blind every day, but at least it’s safe. If you don’t count the 500-something number of banks going broke since 2000, myriads of crimes and cyber crimes happening more and more often more and more frequently, and the fact that banks themselves are getting extortionate fees out of you, – banks are pretty safe. 

cyber crimes

As marketplaces go, centralized crypto exchanges are even less safe. In fact, 12 of them have been hacked in 2019, which is an all-time record. What an achievement! You’d think with exchanges raking in indescribably money every day (Binance’s trade volume is $9,821,577,438) they’d pay at least a little bit of attention to security. 

But, as the legendary crypto expert Andreas Antonopoulos points out with Zen-level laconicity, wisdom, and expertise: “your keys=your money. Not your keys=not your money”. Here’s what to examine in your exchange so as to avoid danger:

Reviews

Read exchange reviews

When you’re picking an exchange, make sure you’ve read all the individual reviews. Criminal exchanges may attempt to hide their past, but the Internet remembers everything. Data is unhideable (no matter what people will tell you). And that’s also why blockchain is awesome. But going back to the subject, the absolutely first thing you should do before you begin is read reviews of the cryptocurrency exchange you’re choosing. 

 Insurance fund

Is there any insurance?

One important thing to ask (the support for instance) is whether the exchange you’re going to get engaged with has an insurance fund.  That will cover your funds in case they get hacked. Binance used their insurance to give people their money back during their hack last year. 

Regular security updates 

Also, look out for constantly updated security. If your antivirus software database is out of date, it’s the equivalent of cutting yourself in the middle of the ocean. Start watching out for fins. Sharks can smell blood miles away, and so can hackers. Make sure your exchange is keeping their security in top shape!

Do they send their KYC off to a third party? 

That’s a no-no. You don’t want anyone to have your private data. And your private keys even more so. If you can choose an exchange like Nominex that doesn’t ask for KYC on withdrawals of up to 3BTC, perfect. No-KYC exchanges will 99% vanish with your money. But KYC isn’t great either. You DO NOT want your details floating out there (like blood in the ocean). Nominex has an elegant solution. 

Volumes

Good volumes mean your trades will happen fast. Also, the more people on the exchange the better: strength in numbers (although there are exceptions to that rule).

What kind of person is the CEO?

Explore the person in charge for dark past, stock manipulation, and so on. How successful were previous projects? Are any team members wanted by the FBI? Are they user-focused or dollar-focused? Are their policies making sense? Is there a history of withdrawal difficulties?

Finally: the problem with centralized exchanges

…Is that they are centralized. See this article about DEXes and contemplate maybe switching up a gear. 

Final thoughts

If we consider centralized exchanges in terms of just access for beginners and the fact that it is convenient, then centralized vaults are an analogue of a standard bank. This is an understandable structure that we all used at some point. Of course, banks have problems – they can go bust and your money fis gone. This is also the case with centralized repositories. But on the other hand, there are benefits for beginners.

For example, with full decentralization, you will not have any registration through Facebook – you just stress managing private keys from the moment of registration to the end of your life.

Someone can hack your Facebook

With centralized vaults, there is a simplification of entry, since the keys are in the safe, and you have an account through which to register easily. Is there any risk? Yes. Someone can hack your Facebook account or Google Mail and withdraw all the money. Risky but convenient if you have little money and this is your first crypto experience.

If you’re prepared to risk small amounts of crypto, and you want to have fun and learn and play, choose centralized exchanges. When you get serious, you definitely should get a hardware wallet and try DEXes. But centralized exchanges are a perfect starting point, and the fact that 99% of trading happens there are proof of that.

Centralized systems take upon their fragile shoulders a part of the stress with private keys and in general all these blockchain complications, and you just turn up, register via LinkedIn or Google Mail, buy bitcoins using a card and happily work while gathering intelligence and learning  to mature enough to understand decentralization and private keys.

Easy entry is useful for the crypto community as it allows a large number of people to try crypto and decide what to do with it.

A list of centralized cryptocurrency exchanges

Now you know what to look for, here are centralized typo exchanges you will find the safest and fun if you don’t yet trust DEXes because of their awkward interface and relative newness – or you don’t yet have the technical skills to mount your funds there. 

Bitstamp logo

Bitstamp is (for all intents and purposes) the oldest exchange around. For that reason, we would probably trust it a lot. It has a few other advantages, but it offers the same functionality as everybody else more or less, so all other things being equal you want to be looking for time in the business as your first port of call. However! Time in the business isn’t everything, like Binance proved. 

Binance logo

Binance is everyone’s favorite with its top positions in the charts and staggering infrastructure (Binance Research, Binance Academy, Binance is launching astronauts into space, Binance just built a new civilization collecting diamond rain on Jupiter…). It’s relatively new, having been around only for 3 years, but in that short time, it managed to provide extremely impressive results. It also turned out to be quite hackable.

Nominex exchange

Nominex, a cryptocurrency exchange licensed in the world’s cybersecurity capital, Estonia, takes its security very seriously. Its main advantages are a 2-second registration with no need to give away private details thanks to lack of KYC to a limit, staggering passive income opportunities, demo tournaments that allow making money with 0 capital, an education program that is coming soon*, and many other delicious features like fantastically low fees and constant giveaways.

We definitely think giving Nominex a go is a great idea, whether you decide to stay or go Deus Ex DEX. In any case, you can be registered in under a minute and you’re literally not risking anything. 

We won’t ask you for your passport or SSN or to SLOWLY shake your head in front of the camera for KYC like other exchanges. Come for the zeroes, stay for the heroes! 

*make sure you know everything there is to know about crypto before you trade.

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