I wrote this up over the weekend. Having run an exchange before and having to shut it down, it pains me greatly to still be reading about people losing their funds. Hopefully this will give you all a few other things that might be warning signs, from the perspective of an ex-exchange operator.
Posted Feb 11, 2020, 6:57 PM UTC
A legitimate exchange will ask for everything they need for a FULL AND COMPLETE transaction up front BEFORE allowing the deposit. Some examples:
If they need KYC, they will request these documents up front before they display any deposit addresses in their interface.
People need to know this. Any legitimate exchange should require KYC (at the very least it shows they're complaint with the law, unlike the exchange this subreddit was created for).
Do you know who is steering the ship? Is the leadership team visible? Absence of real people and clear identification of jurisdiction is a huge red flag.
Has the exchange or leadership at the exchange ever allowed or condoned wash trading? Have they faked volumes in other ways?
How would the investor know if the exchange is faking volume? It's so common, there might be no exchanges that don't fake volume.
Do they claim to use multisig for deposits, while you can clearly see that your BTC deposit address starts with a 1? Have they been caught covering up hacks?
Is there a central website that covers this information? Generally I find out about these things from the media or specialized crypto-media, but the former talks about crypto rarely, while the latter are typically cheerleaders that ignore problems.
More recently I’ve been involved with the design and launch of TxQuick, (https://ca.txquick.com/) a safe no-KYC crypto to crypto exchange headquartered in Kelowna, BC.
I don't know how you can do a legal no-KYC exchange in this day and age. Canadian regulation is in its infancy, but if that's still legal, it won't be for long.
> How would the investor know if the exchange is faking volume? It's so common, there might be no exchanges that don't fake volume.
You're right, it is hard sometimes to discern this. Over time though suspicions usually develop and you'll start seeing articles about it appearing. Of course you can try trading against yourself. Put up a sell and see if you can buy it. If you can, then anyone can, and the engine is allowing wash trading. Nomics also has a volume transparency program exchanges can participate in. https://nomics.com/exchanges TxQuick is integrated with Nomics, so essentially Nomics can see the trades as they go through the engine. (Our volume is super low, but we're just getting going.)
This of course also extends to the leadership and early days of the exchanges. There are major exchanges today that have management with a history of wash trading and faking volume. Cutting corners like that has caught up with them before. It likely will again one way or another.
> Is there a central website that covers this information? Generally I find out about these things from the media or specialized crypto-media, but the former talks about crypto rarely, while the latter are typically cheerleaders that ignore problems.
I wish there were. And this is one of the crazy things... that the major platforms don't even at a surface level provide this transparency just enables the exchanges without adequate security to continue operating as if they have the same controls in place. I understand why they do it - it's operational security to not divulge how you handle your storage. But you can at a minimum say "your deposit flows into our multisig warm wallet, from there it can go to our single sig hot wallet or to our 3/5 cold wallet". It's not like this stuff isn't transparent to hackers anyway with the right blockchain analysis knowhow. With TxQuick we have an "our wallets" page that is intended to provide this transparency. We need to add some notes on there about what is a cold wallet, warm wallet, hot wallet, etc, but you can see on there what our Ethereum warm wallet address is and if you look it up on etherscan.io you can verify yourself that it's a multisig contract.
> I don't know how you can do a legal no-KYC exchange in this day and age. Canadian regulation is in its infancy, but if that's still legal, it won't be for long.
Both the US and Canada have already addressed crypto via their regulations for MSB's, so it's not that they're unaware. They allow small amounts without KYC I think for several reasons. With crypto being a commodity I don't think they want to require grocery stores to KYC everyone that buys a $100 gift card. Video games have their own currencies and items with real value, I can't imagine they want to start requiring video games to KYC their players either.
Makes more sense to apply some common sense low limit that prevents large-scale laundering and bad guy financing without putting legitimate mom and pop shops out of business.
Also - the regulators know that making it expensive to operate in your home country just pushes this stuff over the border. TxQuick already operates at a massive disadvantage to exchanges in lax jurisdictions and bankrupting us doesn't mean the trading stops. It just means the trading moves offshore where it's outside the reach of Canadian law enforcement.
Just a side note - We will soon introduce an option to KYC that will get you higher limits.
People need to know this. Any legitimate exchange should require KYC (at the very least it shows they're complaint with the law, unlike the exchange this subreddit was created for).
Quadriga did require KYC/AML. Lots of affected users provided their personal information. They were also fully registered with FINTRAC as a money services business until it expired. At one point, Quadriga was the most legitimate exchange in Canada from a legal standpoint.
Is there a central website that covers this information? Generally I find out about these things from the media or specialized crypto-media, but the former talks about crypto rarely, while the latter are typically cheerleaders that ignore problems.
I have been thinking about building a directory of sorts. This is a very real problem, and in my research I always find it's extremely hard and time consuming to find actual data on the various exchanges beyond the high level/surface. Even the few exchanges with audits apparently don't even want to put this on their website. Mostly I have to go through link after link of various media and blog and forum posts. What I'm thinking of doing is (1) devising a set of rules based on my present study of over 75 previous hack/fraud cases, (2) giving exchanges points based on comparing their practices against this ruleset, (3) summing up those points to create a score, and providing the analysis of each exchange on the same website as a ranked list. In honesty, I believe if the rules were regulated, it would be very effective to protect traders, however that would take a concerted effort that I'm not sure this community would be willing to get behind. There are a lot of people who just want their bankruptcy payout and move on without ever trying to fix the problems. Any model the government comes up with on it's own will be expensive and based on traditional finance. Just look at the handling of our bankruptcy and at Nortel to get some ideas of what could go wrong. The framework I'm proposing would allow us to keep a diverse set of exchanges, lower costs for trading, and be much more effective since it targets the actual historic problems and gives more transparency tools right to the community.
Shakepay is the best exchange in canada. Bar none. No question. No issues and barely any fees. Instant cash out. They even pay you every day just for shaking your phone. Have you tried Shakepay? Sign up with my link and we'll each get $10 to buy crypto
The only factor I care about is how fast the coins get into my wallet.
Shakepay is basically instant. Funds appear in less than a minute and bitcoin is usually transferred in the next block or two.
This. Buy your Bitcoin and IMMEDIATELY take possession of it. Shakepay sends it within seconds, suggesting that they don't even think about playing around with fractional reserves.
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Yes. I'm easy to find and not going anywhere. Did you read the article?
Coinbase I can buy and sell in Canada now. So I use them. But the fees are stupid. What do you recommend?
Coinbase is one of the few exchanges with hot wallet insurance. From what I have read, their security team is also very strong, having been one of the first to detect the Ethereum Classic 51% attacks which stole from at least two other exchanges.
However, if you are looking for lower and more transparent fees CoinBerry can work very well. They don't charge withdrawal or deposit fees (eat the fees for you), and the trading fees are a flat 0.5%. The lack of deposit/withdrawal fees is a huge advantage to let you move funds to and from a wallet you control.
There are tons of exchanges in Canada at the moment. Let me know if you want my opinion on any of them.
For CAD/USD to Crypto Coinbase is about as trustworthy as you can get. That said, they personally cost me thousands back in 2014 when they booted me and took weeks to return my funds in the process of a buy right before a run up. Never gave me a reason for booting me either. I have no criminal convictions of any kind anywhere, have never transacted on a darknet market, have never gambled with my crypto... it made zero sense.
My next go-to in Canada would be Coinsquare right now.
For Crypto to Crypto I have to recommend my own exchange of course: https://ca.txquick.com/. It's instant delivery - we don't have accounts that hold your funds. Our custody is solid with deposits going directly into multisig storage but the regulations are in flux right now in Canada so we're being careful.
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