Watch Out: Nested Exchanges

Diving into the space of cryptocurrency trading, crypto exchange, and other related activities in the crypto industry, you should make sure that the exchange chosen for this can provide a high level of security. If there is no certainty about this, then most likely you are dealing with nested, or instant, cryptocurrency exchanges. Their names correspond to the speed of registration of investors and the concept of nested service” used by such exchanges. They usually hide their status.

The Ingenuity of The Nested Crypto Exchanges

The nested exchange acts as an intermediary between the account holder and another exchange. An account created by a legal entity or an individual on a legitimate exchange is used so that other persons can use it to receive trading services. By opening accounts on large cryptocurrency exchanges, nested exchanges work without attracting attention to themselves. Often, the clients of the nested exchanges are scammers or extortionists, since it is through the nested exchanges that money is “laundered” or even funds are stolen.

Risks of Working with a Nested Cryptocurrency Exchange

By entering into a transaction using a nested market, the account holder puts their finances at large risks:

  • the account holder may lose their money if the exchange is unexpectedly closed by the regulatory authorities (as was the case with nested exchange Suex in September 2021).
  • using the nested market, customers can never be sure that they are not to promote illegal activities.
  • the nested exchange does not provide any security guarantees when storing cryptocurrencies.

How to Distinguish a Decentralized Exchange from a Nested Exchange

A decentralized cryptocurrency exchange can easily be confused with a nested exchange if you focus on the verification process. However, a decentralized cryptocurrency exchange allows the buyer to work directly with the seller. Besides, they do not shift the storage of the buyer’s cryptocurrency during the transaction. The nested exchange, on the contrary, without providing security guarantees, undertakes storing the client’s cryptocurrency and uses the services of another exchange.

What Should Alert the Account Holder to Avoid Getting on the Nested Exchange

A vital step when concluding cryptocurrency transactions is to choose a legitimate cryptocurrency exchange. There are several ways to determine that an exchange is not legitimate:

  • the requirements for the verification procedure are either minimal or completely absent.
  • there is no information about the location of the transaction.
  • the presence of several rates on the exchange indicates that the exchange uses accounts on other exchanges.
  • with the help of the blockchain browser, the account holder can observe that their cryptocurrency came from a wallet from another exchange.

Takeaway

The anti-money laundering policy and regulations of the crypto industry are currently still far from perfect, as the industry is still growing and developing. Therefore, in an effort to preserve the security of your assets, you should choose trading on cryptocurrency exchanges that are closely related to KYC and AML.

Undoubtedly, registration will take time, but guarantees of the security of your cryptocurrency funds are provided. With a reasonable approach, the tempting offers of nested exchanges (buying and selling cryptocurrencies for cash, the absence of a long registration procedure, and instant access to trading) should not attract but alarm.