Crypto-exchange platforms are producing fake crypto money and it's not a good news

Crypto-exchange platforms are producing fake crypto money and it’s not a good news

When i am using my coinbase account, i can make a transfer between external wallet and my coinbase account wallet. Good. And it’s normal. It means that the blockchain of each currency is used to process the payment.

But they have another option where you can convert between crypto-currencies inside your own coinbase portfolio

Convert options of coinbase

Sorry it’s in French but you can easily understand.

For example, in this case, i can convert my BTC to BCH using their own conversion tool.

The website is not working with CHF but the apps do it .

This tool is just internal.

They explain to you that you won’t process it via the Blockchain of BTC and BCH to avoid any ‘official’ fee then they convert your BTC to BCH using an internal rate and keep your capital as it is. Your two balances of BTC and BCH are changed to the rates they show you and all is done in one instant.

You feel good because you did not lose money (1/) and all seems right but it’s then just the beginning of the inferno for Crypto-World and i will explain to you why.

All crypto-exchange platform are doing that and they are just beginning to produce fake “crypto-currencies money” because the temptation is high. It’s what all banks are doing every day and it’s the real source of their power and also the source of prosperity of a part of our world too.

Why is it “fake crypto-currencies money”?

First is not “Fake” if the broker or the platform behind has really this money in this crypto-currency “behind”.

When I say behind I am speaking about the so-called “Hedging Account” you need to know about to continue.

In some model, 

when a broker is playing with Forex, for example, they used to have a hedging account which is the account of the company itself where the orders of the client are really “played” with another partner – the liquidity provider. This hedging account is divided by fiat currency: USD, EUR, CHF, JPY, RUB whatever you want…

Your personal trading account is then only a line in a database but doesn’t have really a physical presence in the broker side.

Using it you can manipulate easily like you want any movement between the internal(s) account(s) because it’s only an update in your database.

If you want to be OK, you just need to be sure that your hedging account balance is at minimum superior to the total of the balance you gave to your(s) client(s).

For brokers, it’s what they are doing if they are playing in A-BOOK because they can’t engage more money than their clients have.

For Banks, since a long time ago, it’s not the case at all.

A lot of banks are using the deposit to make their own business and there is a ratio between the deposit and the money really “deposited, not moving” in the account of the client.

They only bet that every client won’t ask his money at the same time. 

For crypto-exchange platform, when a platform offers you to turn your BTC into ETH for example without using the BlockChain of BTC and ETH, it’s the same that bank does.

Indeed. they create a new ETH address in this case, OK, but there is no money really inside. 

They have a layer a front of their “hedging account in ETH” which say that “Mr .X has 10 ETH” inside the account of the company itself.

They took money from your wallet in BTC (which is also totally mixed inside their BTC global wallet) by just subtracting the amount from their database without touching the blockchain at all and without touching their ETH wallet at all they credit your ETH account in the database Your money is totally mixed with their money.

They can’t do in another way if they are not using the blockchain to attribute “classically”  to your new address the new good amount of money.

I am not a layer but i would say you consent finally to give them your money because you can’t distinguish really in the global ETH ‘hedging‘ wallet of the company who has what.

Indeed if you analyze the blockchain of BTC and ETH. I won’t find any trace of any transaction giving you the rights on this money because there is no public transaction which was the basis of the blockchain, you remember?

Then if the company disappear, your money is vanishing with them, totally

If the internal ledger of the company is destroyed. It’s worst: nobody will be able to know if you had money with them.

I don’t know, to be honest, if coinbase or others are doing that but I guess they do like that because they can’t do another way, technically.

When you are transferring the “Fake” ETH balance you have to an external platform, they use their own wallet to send the money to the external account.

In fact, at this moment, they credit you of your ETH balance and then use your address – which is technically their address by the way – , and make the transfer using the blockchain this time then this money is appearing only when you are doing your first external transaction.

If you keep the money inside the platform, it’s a pure black box and nobody knows you have this money. Your balance does not exists.

The temptation of the crypto-exchange platform is then to use your “fake deposit” to make their own business like banks are doing.

It means that they can show you a 10 ETH in your account and finally have only 5 real ETH in their own (real) account.

They only bet that you won’t ask them to transfer outside their platform the 10 ETH because they don’t have, really, it.

Just imagine you are not alone on this platform then statically you can bet that all people won’t ask for the transfer of all their balance at the same moment. It’s not true, it won’t happen except if you know that the platform is beginning to be compromised.

Because in the majority of the countries, there is no regulation at all concerning crypto-asset, using this platform exposes you to the biggest scam you can find.

They will have a problem if they don’t give you the 10 ETH they promise you to give you but technically you won’t have any way to get your money back if you did not transfer this amount to an external platform to “mark your money”.

You can also easily imagine how crypto-platform may play with fire using their crypto liquidity to bet on speculation to maximize their profit using your own deposit.

If the market reverses on the wrong way, and with crypto, it’s happening all the time, their lifetime may be short and the lifetime of your fake wallet too.

There is 4 options to manage this problem :

1 – Hold your asset locally (USB key, computer, what ever) with your wallet . It’s the old school method and perhaps a little risky.

2 – Hold you asset in a segragated way in platform where you can download your wallet and upload it too. You are free to to take away your wallet “physically” and accessing also to your wallet only when you are making operation

3 –Transfer your money to other platform and “move your money” between platform trying to manage the risk by using severals platforms at a time. For small deposit, it’s an hard work for nothing.

4- Trust the exchange platform like you trust your bank too and bet they won’t never have any liquidity problem like banks did (arghh).