Scammers are getting more and more sophisticated these days. Some have faked entire applications to get their hands on other people’s money.
This undesired predator-prey race in which scammers keep upping their game to gain access to potential victims probably won’t be coming to an end any time soon.
For now, information and awareness is every individual’s best line of defense. Here, we list some precautionary measures users can take before jumping into a new crypto exchange.
Do a Google search
This is the first thing anyone should do. By simply Googling the exchange, you may come across reviews—as well as warnings about anything shady regarding the exchange. You should check out reviews from cryptocurrency websites, blog posts, and reputable forums like Reddit and Bitcointalk because users are usually the first to call out scams.
Nowadays, you can easily do background checks, so there are no excuses for not doing your due diligence. Most of the time, you can check the registration of companies online through a database for the country they claim to be in, along with their listed office address. You can even go to Google Maps to check out the address and do a 360 virtual tour. If it doesn’t exist, or if the office address is that of a vacant lot, that’s not a good sign.
Size up the company’s operations
If they provide documentation of their API, this is a good sign. It means they are confident enough to let the whole world test out their code. If there are bugs and vulnerabilities, it will also be found out—and solved—more easily.
Apart from this, do they have a dedicated customer support system? A decent exchange will ensure that their customers are not left blind and helpless in case there are any issues. Customer support should be one of their primary expenditures, and this service should actually be working; this means it’s not just an email address from which nobody ever gets a response or a dead-end bot-run message generator. Customers should never feel like they’re sending messages into a void.
Check out their online presence as well. Social media and messaging channels are a good sign that the exchange is serious in providing service. If they try to bait you with outlandish promises of high returns, then remember: Ponzi’s and pyramid schemes are illegal for good reasons.
Ask around
There are dedicated communities on Reddit, Telegram, Slack, and even Twitter where you can directly post questions about specific exchanges. Most of them are willing to help out and guide newcomers.
In fact, there are also many influencers and experts in the cryptocurrency space who would be happy to check something out to potentially warn others if something seems shady.
Benefits: Is it worth the risk?
If the new exchange you’re looking at doesn’t offer anything substantially better than what established ones provide, is it worth the risk?
For example, the recently launched crypto-exchange Robinhood offered zero-commission trading. As a result, they amassed over one million people signed up for early access to the platform.
Some exchanges also invest in new technologies to make the experience better for users. For instance, BitAsset, a new exchange in Hong Kong, launched the Robo-Adviser—an intelligent investment mode that helps traders make the best of their investments; this is in addition to other features that would help them compete with already established exchanges, like spot trading, market-maker service, futures, and derivatives, as well as pledge financing.
Is it a decoy website?
One of the many telling signs that an exchange may not be safe is if they’re trying to look like somebody else. And by “somebody,” that means another exchange or website—one that is well-known; this is the standard modus operandi of phishing websites. Check the URL carefully, copy-and-paste it into a word processor and keep changing the fonts. Make sure L’s are not capital i’s and vice versa. Many fake websites–and fake social media accounts–rely on confusing letters to pull off their con.
Proceed with caution, but do not be completely dismissive of companies just because they’re new
In conclusion, if you’re unsure, don’t risk it. Heed the alarm bells. Remember that the only possible damage from risk aversion is missing out. Don’t let the FOMO get the best of you.
However, this isn’t to say that users should dismiss new cryptocurrency exchanges. Cynicism should always be kept in check and maintained at a healthy level. It’s not wise to completely dismiss new players in the field. As cryptocurrencies gain legal recognition in more and more countries, it is expected that more newcomers will enter the space–this includes exchanges.
By default, it’s safer to stick to those that are already well-known. If you do decide to try out new ones, do so with caution. You can test it out with a small amount of cryptocurrency, an amount you wouldn’t mind losing.
You can also snoop around without putting money in. Just get in and observe, checking in now and then for any updates and progress; and remember, it can take quite some time for new exchanges to break through and establish themselves in the industry.