Exchanges and Their flaws
An article published by Bitclub network on their official page titled “5 Flaws of Bitcoin Exchanges – and 4 Reasons Mining Pools Are a Better Investment”
1) Susceptible to Hackers.
More than 30 of the top crypto exchanges were hacked since 2011 And since cryptocurrency transactions are irreversible, that means it’s impossible to retrieve your funds.
Estimates show that almost USD 15 billion was stolen by hacks on these exchanges.
The reason is that the top exchanges are centralized. Like stock markets, it’s necessary to have a mediator to allow an exchange between two parties.
Decentralized exchanges do exist, but they are slower and concentrate few assets – only 1 percent of crypto of worldwide crypto trading shortage of supply takes away the reason for an exchange to even exist.
2) No Price Uniformity
Investors in traditional stock exchanges use price charts to make safer bets. They track the ups and downs of the stock and create forecasts – this is a multibillion dollar business and top analysts are paid big for these reports.
On crypto exchanges though, it’s impossible to make these forecasts. There are too many exchanges, and the coins have different values at each one. There’s no way to create a safe strategy for investment – the exchanges are too volatile with price drops in less than 24 hours!
3) Price Manipulation
Cryptocurrency exchanges have “whales”. These are hedge funds who own large amounts of a crypto coin, and then can manipulate the exchange as they wish.
Imagine a “whale” buys most of the Bitcoin available at an exchange. Smaller investors buy Bitcoin too, expecting a price surge. Suddenly, as soon as the price is up, the “whales” cash out from the exchange – the price goes down, and the small investors earn nothing.
This practice is similar to what happens in traditional stock markets with big players and is happening in the crypto world too.
4) Pump And Dump ICO Scams
ICO Exchanges are places to trade Initial Coin Offerings: cryptocurrencies created by new companies to raise funds. And while there are legitimate ICOs, in which early-bird investors can earn a decent profit
The creators of these ICOs operate a scam called Pump and Dump – over 80% of ICO were scams in 2017.
Creators of these ICOs operate a scam called Pump and dump
5) Delays and Fees
Trading on an exchange takes time because of all the necessary validation procedures. It’s not just the blockchain – exchanges need to verify your identity before every trade.
In worst-case scenarios, trades can take two days to go through. In such large timeframes, investors can lose income due to price fluctuation.
Besides the time-consuming delays, exchanges charge fees of up to 3% for each transaction. That bites away at your income every time you invest.