“The Banks of Cryptocurrency”
Updated: Feb 23
Cryptocurrency was created by a person who goes by the name Satoshi Nakamoto. Many believe this is just a cover-up to protect the creator’s true identity. Weird, huh? More importantly, Nakamoto, or whoever he is, created a Peer-to-Peer electronic cash system. His idea was to allow online payments from one person to another without going through a third party, as stated in a document written by Nakamoto himself.
According to this paper written by Nakamoto, “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model.”- click here for the full story
Once you buy cryptocurrency, you can either save them in your electronic wallet or you can trade them through crypto exchanges. Cryptocurrencyfacts.com states that “a cryptocurrency exchange is like a stock exchange or like a currency exchange in a foreign airport (a place people can trade cryptocurrency for other cryptocurrencies and fiat currencies like the US dollar). Just like if you want to trade stocks, you need a bank account and access to the stock exchange, it is the same deal with cryptocurrency.” Click here for the full story.
The cryptocurrency system obligates you to use an exchange in order to trade your crypto. Cryptocurrency eliminates the third party, meaning, for the most part, banks; but instead, they have created the need for this new type of banking through crypto exchanges. These exchanges operate under no regulation by the government, therefore, the exchanges can regulate themselves and set up their own rules.
Don’t get me wrong; I’m not saying banks are great or are going against cryptocurrency exchanges. I do think there are some things people must know when dealing with exchanges.
Recently, my boss had a very bad experience with the cryptocurrency exchange Bitstamp. This crypto exchange started out in 2011 and is a well-known exchange. On April 30th, 2018, Bitstamp prevented him from withdrawing his bitcoins, cash, or any other crypto from his account.
According to Davinci Jeremie, “I was in a panic since the freedom to transfer from one account to another with crypto is fundamentally a right that is non-revocable, and I was so used to that ability. Also, the amount was a very large seven-figure value. I know, I know; the rule never to leave money on exchanges. However, a trader has to trade, and when Bitcoin was above 17k, I felt the need to sell a large chunk of my portfolio to buy back at 7k.”
This is the message he received from Bitstamp:
Kindly? Okay, so what are these questions all about?
If you look closely at the questions, you will see they are asking for way too much information and some questions are even a bit scary. In one question he was even asked how much money he will withdraw annually; this makes me think that they may fractionally reserve his money and don't have everyone's funds.
Davinci also adds that “after eight days of freaking out and calling every day with no response, they finally contacted me asking a set of new questions. They wanted to see invoices of mining hardware and proof that I once ran a mining pool, additionally with more evidence that I earned such a large sum. I provided the answer they wanted, but one question cleared up why they started this witch hunt in the first place. It turns out when they asked for my new passport, since the old one on file was expired, I had accidentally sent them my brother's passport.”
“Regardless of the mix-up, it is unethical of them to hold my money hostage unless I sing and dance for them, so I have to exit. If that's how they want to treat their customers, I can no longer be one of them. If they want me back, I need to see their underwear, aka, balance sheet expenses, reserve ratios, security procedures for protecting my money; everything to ensure they are not insolvent or incompetent. I don't think I am asking too much."
On January, 11th, 2018 News.bitcoin stated that, “Customers of Slovenia’s Bitstamp exchange are being forced to jump through hoops to meet an unprecedented level of compliance. A widely circulated image purporting to reveal Bitstamp’s enhanced KYC procedure has been attracting a lot of attention. The document requests screenshots of other cryptocurrency exchange profiles, bank account statements showing fiat deposits to third party exchanges, and signed messages from the BTC and ETH addresses the customer intends to use." - click here for full story
Unfortunately, I believe that this type of behavior from crypto exchanges are alarming many people and creating an unnecessary distrust within the crypto world.
Once I started discussing this matter, you get the feeling that everyone is very careful when it comes to bitcoins; who to trust, where to spent and where to trade crypto.
I do believe that in this particular case, Bitstamp meant no misunderstanding. However, the feedback they have been receiving from clients or news sources on this particular security matter should be acknowledged. Exchanges should work towards a better customer relationship, since this might be a new market and it seems it is here to stay.
Hope you enjoyed it! Feel free to comment.