Unless you received your first Bitcoin from someone else, chances are, your first purchase was through a cryptocurrency exchange. In the past, those trading stocks did not think twice about storing their shares on the exchange where they bought them. As such storage worked well for the intended purpose, the same logic was applied to the storing of Bitcoin and other crypto tokens – only to be proven a disastrous idea later on. As a result, since the inception of cryptocurrency, billions of dollars have been lost and stolen by nefarious parties.
Unregulated Exchanges and The Risks They Pose
To this day, news about coins getting stuck, unregulated exchanges imploding, or people being unable to transfer funds plague the internet. To make matters worse, unless one has the legal or financial means to pursue such matters to their full extent, there is practically no recourse for retrieving lost funds. Most unregulated cryptocurrency exchanges treat security as an afterthought to collecting trading fees and making profits. Ultimately, no unregulated exchange can guarantee safety, more so, as there is no regulating body holding unregulated exchanges responsible.
Since the inception of Bitcoin, exchanges have been losing investor funds. Over 1 million BTC was lost in exchange deposits from 2012–14. This culminated in the infamous Mt. Gox hack, which saw 850,000 BTC stolen from the site, about $32,464,985,000 at the time of this article. The pace of these exchange failures hasn’t dropped since, with the Canadian exchange QuadrigaCX announcing last year that they had lost nearly $200m of user funds. While the Blockchain technology itself is very secure and essentially unhackable, the unregulated nature of exchanges makes them extremely vulnerable.
Many ICO (Initial Coin Offering) projects in 2017 emphasized on using wallets instead of exchanges for their offerings. However, self-regulated wallets have their own set of issues too. While the full control one has with self custody may sound attractive, it comes with obvious risks. For example, if your private keys are lost, stolen, or any part of your retrieval procedure is compromised, your tokens are lost forever with no one to blame but yourself. Sadly, this has also been a huge contributor to billions of funds being lost.
Ensuring Funds Are Safe
Regulated exchanges provide all the benefits of purchasing and storing tokens on an exchange, such as liquidity and ease of access, without any of the custody risks discussed so far.
For instance, MENA’s regulated digital assets exchange, CoinMENA has chosen the Kingdom of Bahrain as its regulatory jurisdiction and headquarter location. Bahrain is the only jurisdiction in the MENA region to have onshore crypto assets regulations and one of the most stringent regulatory frameworks globally. CoinMENA’s Crypto Assets Service License (Category 2) from the Central Bank of Bahrain (CBB), allowing the exchange to trade in accepted digital assets as agent, manage portfolios of clients, and secure digital asset custody.
In addition to the Central Bank of Bahrain’s license, CoinMENA is registered under the Ministry of Industry, Commerce & Tourism. For users, this means that CoinMENA is governed by and operating under some of the most robust rules and regulations globally with clear governance and operating model with recourse, should the funds ever be compromised.
CoinMENA also has a proper banking setup and associate payments infrastructure with world-class technology and cybersecurity to ensure customers’ information and assets are fully protected. To prevent money laundering and financial crime, CoinMENA has also instituted a system of checks and balances that ensure the integrity of the platform. Clients’ funds and assets are segregated and safeguarded with offline storage that no hacker or nefarious party could ever access.
If you are using another cryptocurrency exchange, we strongly urge you to read their fine print and security policies. If they don’t exist, or even anything less than crystal clear, it would be in your best interest to assume that your funds are vulnerable and at risk.