Why most of Exchanges FAIL ?

[ItsaWhale]

Looking back in history since Bitcoin was created back in 2009
There were a lot of different exchanges like

• FTX, November 2022. Bankruptcy Type.
  Three Arrows Capital, July 2022. Bankruptcy Type.
  BlockFi, November 2022. Bankruptcy Type.
  Core Scientific, December 2022. Bankruptcy Type.
  Voyager Digital, July 2022. Bankruptcy Type.
  Celsius, June 2022.
  Babel Finance, June 2022.
  Hodlnaut, August 2022.
  Cryptopia ,
  Bittrex ,

It happen with all and it can happen with Current ones
e.g the last one KuCoin like 7 Days ago two of its founders were charged with violating anti-money laundering laws by U.S.
Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Does this concern you ?

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[livingfree]

Does this concern you ?

No.

And that is because I am just a casual user of the exchanges and I am using them as what they've been built for and that's to trade only there. I don't keep my assets there and that's why it doesn't really concerning nor bothering me.

But those investors and traders that are keeping their funds on any exchange, you've seen how the reputable ones get into trouble and don't be too confident with the current ones that has no record yet.

Because if they're transparent then I don't think that there's gonna be a big problem for them.

[dimonstration]

Mismanagement of assets. Some exchange use users funds on investment to gain profit out of their customers money just like banks doing on the assets entrusted to them. The difference is crypto exchange has less liquidity than banks while they are investing on too volatile assets that’s why one wrong investment can collapse the business when followed by multiple withdrawals from whale traders.

Having a strict regulation and audit on casino funds will solve this issue on exchange. Exchange can be transparent by posting all their funds wallet to check whether their assets is 1:1 backed the user funds. Current exchange can still suffer huge loss since many people becomes greedy in crypto because they can hide their tracks due weak regulation.

[Lakai01]

[...]
Having a strict regulation and audit on casino funds will solve this issue on exchange. Exchange can be transparent by posting all their funds wallet to check whether their assets is 1:1 backed the user funds. Current exchange can still suffer huge loss since many people becomes greedy in crypto because they can hide their tracks due weak regulation.

This is already the case with regulated exchanges such as the Austrian exchange Bitpanda. Bitpanda has to prove that it actually owns its customers' funds and is regularly audited to this end. I personally have my ETH in staking at Bitpanda and have absolutely no bad conscience about it.

Unfortunately, this is by no means the case with all exchanges and certainly not as transparent. So you don't know whether the exchange is gambling with customers' funds, whether it is holding them at all or whether an exit scam is imminent anyway because the customer coins have already been gambled away. Unfortunately, there are more than enough examples of this in the past.

Anyone who wants to know more about Bitpanda and how to keep the funds safe, please follow this link: Security at Bitpanda

[mindrust]

Running an exchange is a serious business. It is much like unlicensed banking. They mostly run on fractional reserve just like real banks. Meaning they let people own more crypto than the actual crypto in the exchange’s cold wallets. When there is bad news, people run to the exits but the exchange in question doesn’t have these funds. They go bankrupt just like the real banks. Actually they go bankrupt even quicker because there is no government to bail them out. If the governments weren’t interfering, we would see more banks filing for bankruptcy today. That’s a healthy occurrence. They shouldn’t be chewing more than they could afford to swallow.

[TheUltraElite]

Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Which is the only single take home message from this community but members have been saying this over and over again but the few people in the forum do not contribute much to the vast number of users attending these exchanges daily.

Hence whenever such shutdowns or scams happen, a large chunk of money from these users will be lost in limbo for the time being.

Does this concern you ?

If you are regularly using an exchange then it would. But crypto is the wild west and these risks are common here unless something big happens or we see some regulation come in.

[Hyphen(-)]

It happen with all and it can happen with Current ones
e.g the last one KuCoin like 7 Days ago two of its founders were charged with violating anti-money laundering laws by U.S.
Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Does this concern you ?

This actually concerns everyone that leaves their funds in centralized exchanges especially people that hold altcoins in the exchanges.

The main reason why Centralized exchanges go bankrupt is because of different people controlling the exchange, this has made it centralized because any issue that might occur will lead to bankruptcy because once one or two officials were arrested, there is a high chance that the exchange will be forced to stop their services immediately to prevent people from falling victim.

These KuCoin issues will be resolved soon I guess because they did not scam people and have strong community and now have reputation as Binance as they are regarded as one of the best Centralized exchanges.

[Nrcewker]

This does not concern me at all. I just use these exchanges to cash out Bitcoins or swap coins. I never store huge amount of coins in these exchanges. Moreover I have always used the Binance and Bittrex from the past few years. I never jumped to other exchanges and hence always ignored what’s happening there. The main reason for which these exchanges shut down is the transparency with the customers and government. Nothing can be done. Use the ones which are already available in the market for long term.

[kentrolla]

Partially agreed with your point as we can use cold wallets to store the assets and it would work for investors but what about daily traders they had to have funds into exchange and unfortunately we cannot sustain with DEX due to low liquidity and UI hence CEX is preferred to trade and store value hence it's a no way out for traders unfortunately.

[batang_bitcoin]

Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Many are already smart but as the flock of newcomers to the market they're not yet experienced. They are still keeping their assets in exchanges. They have to remember these reminders that we're telling them that they don't own the keys when they keep their assets on exchanges.
Looks like they're unstoppable and won't be following these tips that we're giving to them and so, we don't want to happen what shouldn't happen like this fiascos done by the exchanges.

[Faisal2202]

• Cryptopia ,
  Bittrex

Just to make sure, are yo 100% sure that the last two exchanges are bankrupted, I mean, according to data Cryptoia was hacked not bankrupted, and Bittrex is still functional. From where did you took this data, I think you should double check it as it's not accurate. Other than these 2 every exchange is bankrupted.

Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins
Does this concern you ?

Yeah, this concerns me, when the case about Kucoin went public, everyone panicked and started to withdraw their funds from the exchange, I also used Kucoin for some trading purposes, and also rushed to see if I still had my funds on it or not well relieved to see I withdrew all some time ago. Well, the funds were not that much the point is, this short experience that I got after hearing the news must have given me goosebumps to every other person holding his/her funds on that exchange.

I wonder who will have $100, $1000, $10,000 and more. This is just a reminder for all of us to keep our assets in distributed places, ok I got it, you want to use CEXs and don't want to get into using DEXs or cold wallets, then at least we should distribute our funds in different CEXs, as keeping funds on only one centralized exchange is a risky thing.

[BABY SHOES]

I'm not worried about the exchanges as I've never held assets there, perhaps a slight concern would be the impact on the entire market price dropping if one of the major exchanges collapses.

Some exchanges collapse because they fail to manage investors' money properly they don't have healthy reserves so it becomes a crisis when the market is bearish or they lend to the collapsing exchange then it's the same thing.

It is the same with the FTX exchange where SBF steals customers' money for its own benefit by spending a lot of money that does not belong to it.

[Natsuu]

Does this concern you ?

Yes, because whichever you place your holdings there truly is a risk. Those exchanges where treated most as banks rather than as transaction center. It does not contribute to the very essence of Bitcoin to remiove the banking system at least which every transaction can be done by person to person. Most of them also are not regulated and have no proper proof and papers to operate that's why those are being shutted down or chase by the governments.

So instead, I agree to just put your btc and altcoins with cold wallet. There you are holding it just much like a piggy bank or wallet instead of putting it on an exchange like you use it as a bank.

[Assface16678]

As I notice, there are two main reasons why an exchange is not surviving or failing to stay. One of the most common is that the exchange or its owner itself is committing crimes associated with the exchange, as in the case of the OP, the recent one of Kucoin, its owner committing or violating the ban on money laundering, and many more exchanges that do bad things, which is why their exchange also fails.
 
Second is that, as there are many exchanges existing right now, it is hard for new exchanges to survive. It is like surval at the fittest; you need to be unique or popular in order to maintain your exchange. So,  in short, maintaining an exchange despite the numerous existing exchanges is very hard. You need to become or the owner needs to become innovative in order to attract more people or users and in order to survive, or else they will not last for too long.
 

[Zaguru12]

Partially agreed with your point as we can use cold wallets to store the assets and it would work for investors but what about daily traders they had to have funds into exchange and unfortunately we cannot sustain with DEX due to low liquidity and UI hence CEX is preferred to trade and store value hence it's a no way out for traders unfortunately.

I get your points for traders who need to use some of this centralized exchanges most especially the future/perpetual traders due advantages that they offer like better liquidity and high leverages. What you should do in situations like this only put in little amounts of funds in an exchange, an amount that you can afford to use and also you can diversify the exchanges and use something like 2 to 3 exchanges. Almost all the big exchanges offers same advantages on trading and with this diversification you cannot lose everything on one exchange since it is rare for two or more exchanges to collapse or been closed at same time. Then after that you can withdraw all your profits to your custodial wallets for long term storage, this can be done weekly or monthly

[GeorgeJohn]

It happen with all and it can happen with Current ones
e.g the last one KuCoin like 7 Days ago two of its founders were charged with violating anti-money laundering laws by U.S.
Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

there is something that you have to understand especially in storing your Bitcoin so if you want to save your Bitcoin you don't need to use exchange and this information of not to use exchange to store or save your bitcoins, used to be passed across this forum especially in beginners and help board or section, but some people will not understand why many people continue to Lament that using an exchange to serve your coins is not really proper they can use non- custodia wallet to save your Bitcoin instead of using an exchange that they can be easily hacked or attack by government at any point in time.

Some of these exchanges does not have a license to operate and that is why they can be easily be fold or seized by the government that is why whoever that is a good investor of cryptocurrency can never store it s coins especially Bitcoin to exchange wallet.. this has happened to many people so I think the information is clear and then why we are passing this information is because of the new users of this forum who haven't known the disadvantages of using an exchange platform to save its funds.

[...]
Having a strict regulation and audit on casino funds will solve this issue on exchange. Exchange can be transparent by posting all their funds wallet to check whether their assets is 1:1 backed the user funds. Current exchange can still suffer huge loss since many people becomes greedy in crypto because they can hide their tracks due weak regulation.

This is already the case with regulated exchanges such as the Austrian exchange Bitpanda. Bitpanda has to prove that it actually owns its customers' funds and is regularly audited to this end. I personally have my ETH in staking at Bitpanda and have absolutely no bad conscience about it.

Unfortunately, this is by no means the case with all exchanges and certainly not as transparent. So you don't know whether the exchange is gambling with customers' funds, whether it is holding them at all or whether an exit scam is imminent anyway because the customer coins have already been gambled away. Unfortunately, there are more than enough examples of this in the past.

Anyone who wants to know more about Bitpanda and how to keep the funds safe, please follow this link: Security at Bitpanda

there is something that I want to ask you, don't you think about some of the exchange might decide to run a scam exchange platform in order to extort funds from their client, because this has happened to binance exchange and the binance happened to be one of the biggest exchange today that exist, so when binance was hacked binance came back and the try to refund so many people that locks their money through that, so that is to show that binance is not operating illegally why if any exchange that something like that happened and they failed to return that means it might be a conspiracy in order to scam people.. that is why I say that there is every possibility that if an exchange that is operating well stops today by government it maybe that one of the cabinet of exchange may have form alliance with government to redirect everyone funds in that platform to themselves.

Partially agreed with your point as we can use cold wallets to store the assets and it would work for investors but what about daily traders they had to have funds into exchange and unfortunately we cannot sustain with DEX due to low liquidity and UI hence CEX is preferred to trade and store value hence it's a no way out for traders unfortunately.

I think daily Traders is exempted in this scenario because they threat in exchange platform and saving their funds in cold wallet will not be of help to them but they can decide to make sure that they remove their capital and store it to non custodian wallet so there is difference between a daily Trader kind of saving of coin in exchange platform and investor, so my advice is that a daily traders have to bring out their capital and trade with their profits should in case if exchange experience a hack attack it will not affect them.

Partially agreed with your point as we can use cold wallets to store the assets and it would work for investors but what about daily traders they had to have funds into exchange and unfortunately we cannot sustain with DEX due to low liquidity and UI hence CEX is preferred to trade and store value hence it's a no way out for traders unfortunately.

I get your points for traders who need to use some of this centralized exchanges most especially the future/perpetual traders due advantages that they offer like better liquidity and high leverages. What you should do in situations like this only put in little amounts of funds in an exchange, an amount that you can afford to use and also you can diversify the exchanges and use something like 2 to 3 exchanges. Almost all the big exchanges offers same advantages on trading and with this diversification you cannot lose everything on one exchange since it is rare for two or more exchanges to collapse or been closed at same time. Then after that you can withdraw all your profits to your custodial wallets for long term storage, this can be done weekly or monthly

It is right but let us believe and know that is not all exchange that crash on the way or being seized by the government it is obvious that any exchange that operate with license cannot be seized except that they perform an illegal act by doing all involving themselves in money laundering, some of the exchange today which I know quite well has been operating for years and they don't experience any loss it is because of they have an anti hackers who operate with them.... but splitting your money or your funds from exchange to cold wallets will be of benefit for any trader.

[Cookdata]

It happen with all and it can happen with Current ones
e.g the last one KuCoin like 7 Days ago two of its founders were charged with violating anti-money laundering laws by U.S.
Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Does this concern you ?

You made a list of just 2022, what happen to other events that happen before that? You didn't include one of the biggest Bitcoin heists in Mt Gox exchange, to date nothing has been refund to the customers. In 2020, Kucoin about $150M was hacked from Kucoin but they were able to recover them after investigation of the staffs. All what has happened on exchanges send a coming message which is "Not your keys, Not your coins".

Humans are not like computers, human can make a mistake but computers doesn't, this is the difference between a man and a computer, and a man can make mistakes and this mistake is the reason why centralized entity is difficult to manage. If you don't have anything on any centralized exchanges, what happen behind the scenes doesn't need to worry you because you have nothing with them except when you chose to trade.

[tranthidung]

Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Reminder: do not keep your money in online accounts.

Also you can see Exchange graveyards with Time and Cause of Death.

Most of exchange death causes will be

• Scam exit
• Hack and fail to compensate users, fail to recover itself
• Bad treasury management includes customer money; and bad risk management such as over leveraged; then bankrupt

[GreatArkansas]

Be smart and keep your assets SAFE always use a Cold Wallet Your Keys Your Coins

Reminder: do not keep your money in online accounts.

Also you can see Exchange graveyards with Time and Cause of Death.

Most of exchange death causes will be

• Scam exit
• Hack and fail to compensate users, fail to recover itself
• Bad treasury management includes customer money; and bad risk management such as over leveraged; then bankrupt

Exactly! We can really relate this to the OG exchange in Bitcoin which is Mt. Gox.
As everyone knows already, Mt. Gox exchange experienced most of the list that said tranthidung and Mt. Gox is the best example how these tragedies can effect an exchange even how good or nice your exchange is.

[Bobrox]

Many factors make some exchange market got failed from bad management assets, internal problem and hack cases by their own self member with losing much fund then some the exchange difficult recovery their member fund. But most honorable with some exchange market failed give opportunity for their costumer withdrawing all their fund before the exchange operation close and there are not any loss from exchange and the costumer like Hotbit and Bittrex give more than several months left for withdrawing assets.
But for FTX I don't what behind of this exchange become scam, actually I am so excited with this exchange without withdrawal fees and become my favorite exchange with withdrawing ethereum for fees transaction.
Once time an exchange have been scam never has opportunity get back our fund such as Mt.Gox fake promising will refund their bitcoin assets costumer until several years after hacking cases happening not refund yet until right now.