Crypto trading is gaining popularity and almost everybody wants to join the market. However, it is important to know where to begin. This is because of how risky transactions with some exchanges can be. One of such risk is a nested cryptocurrency exchange.
What Is A Nested Crypto Exchange?
A nested crypto exchange operates in simple terms: a person or an entity opens an account with a regulated exchange like Gemini, Kraken, Binance, and Coinbase. The platform being utilized is the host, and the user makes use of this nested account to offer trading services to third parties.
Nested exchanges are sometimes called instant exchanges, and in most cases have multiple accounts across different exchanges. Some of them require identifying documents while others ask for no or little means of identification.
As a result, nested exchanges have become a popular choice with ransomers, fraudsters, and scammers. There are even some nested exchanges that allow for the selling and buying of crypto in person with cash.
The Dangers of a Nested Cryptocurrency Exchange
One of the biggest problems of traditional finance is the risk of money laundering. The correspondent bank cannot be sure of whom they are dealing with as they deal directly with the underlying bank of the respondent. As a result, a due diligence check of the underlying bank is required for nesting.
These are some of the rules that an underlying bank must abide by. If they don’t, the respondent bank may end up being a part of illegal activities like money laundering or avoiding sanctions. Nested exchanges find it easier to operate under the radar as the cryptocurrency sector is still developing robust regulations.
A nested exchange could create an account with any large regulated crypto knowledge without them knowing. You hurt centralized exchanges as well as yourself when you use a nested crypto exchange. Here are some of the dangers that you and your funds are in when you use a nested exchange:
- You might be supporting terrorism and other illegal activities.
- There are legal repercussions that you could face from law enforcement when you work with nested exchanges involved in illicit activities.
- You may lose your digital asset if regulatory authorities shut down the exchange.
- There are fewer guarantees on their safety, unlike a regulated exchange.
How to Spot a Nested Exchange
Not using such platforms is the best way in avoiding a nested exchange. However, you must be able to spot them so you can protect yourself. Here are some warning signs that are quite obvious of nested crypto exchange:
- They have minimal requirements or do not require AML checks or KYC
- Instant sign up for an exchange without limits
- Trading activity is not clearly shown on the UI
- No clear statement as to how the exchange facilitates trades
- There is aggregate different rate to choose from on the exchange
Just as it is with traditional finance, you should choose to only trade with regulated authorities in all your crypto dealings. Buying Bitcoin and other cryptocurrencies is safest with a regulated crypto exchange. Though it may take time to sign up initially, the procedures will keep you safe. Ensure that you treat an exchange with due diligence before using it.
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