Trading Safely on Bitcoin and Altcoin Markets: Advice From the Trenches
First let me introduce myself, my name is Pablo, I have been working in and around virtual currency for about ten years. I have been an active trader on several cryptocoin markets off an on for about 3-4 years.
Rules for Safe Trading:
1. Be cautious, be very, very cautious: You are not paranoid enough, people out there really want to steal your money.
2. Don't assume exchanges will act in your (the customers') interests, they are companies, not NGO's, they're in it to make money and many of them will walk all over you to make a buck, or save a buck. But there are some good indicators to tell the good from the bad.
3. Stay away from any exchange that offers to pay you dividends, interest, etc. just for holding your money. It either means your money is being used outside the exchange environment, which it should not be, or it’s a straight up scam. You have to be careful to differentiate an investment, where you assume risk for equity in a company with a business model, to the pseudo gambling of handing your money off to a third party with vague (and sometimes elaborate) promises of steady returns. To be safe you should generally stay away from both.
4. Customer service is your second indicator: The first thing that comes to mind when I think of Mt. Gox's customer service is “does not give a shit”. I could regale you with stories of how deeply Mt. Gox could not give a shit, way, way before it collapsed. You could hit them up with a ticket on your funds not arriving after 20 days and they would send you a canned answer, absolutely cold and basically “we'll get to it when we get to it, so fuck off.”
The reason customer service is so important is because it tells you two things: the style of the founder, and how well funded the exchange is. If the founder runs a customer centric company (as it should be), customer service will tend to be helpful, they will know that their jobs depend on your satisfaction. If customer services first job, however, is to deflect customers from the exchanges' mismanagement or incompetence, it will be clear to you from your first interaction. A support agent has to develop a thick skin when he is deflecting angry customers all day. It will show. My advice is that before you start trading anywhere, you drop support a question or two, depending on how fast they get back to you and how much room they leave for questions, you can learn a lot.
Customer service also tells you something about how well funded an exchange is. The more available customer service is, the more likely it is you are dealing with a well funded venture. Be suspicious of canned emails with references to “the wiki” or “the FAQ”. Yes, these have their place in the conversation, but the more a customer services agent talks to you like a human being, the more likely it is you are dealing with a reputable and well funded company. Because good customer service isn't cheap, and good customer service agents tend not to work for shady outfits. Working as a rep for a shady outfit wears an agent down mentally and physically, so the good ones tend not to stay, hence why bad businesses tend to have bad customer service reps.
5. Ask around, don't be afraid to look stupid: Although I have been trading at Cryptsy and Bitstamp for several years, I periodically drop the question on Bitcointalk: “Does anyone recommend Bitstamp? Anyone have a bad experience with Cryptsy?” And here I can learn a lot; depending on what feedback I am getting and what I know about this exchange from my research thus far.
Then I google “Exchange X Scam”. You have to keep an eye on the date of results, a lot will be old complaints, logically more recent ones should carry more weight, but you will pick up valuable tidbits here. People who get scammed tend to spread the word far and wide.
6. Speed: Do test buys. Deposit small amounts of currency into the exchange. If this is your first time there, it's worth the trouble to test how long it takes deposits to credit or be withdrawn. If it takes a day for them to process a 0.2 BTC withdrawal, you certainly wont want to trade 20 BTC there. A good exchange will be able to handle an influx of deposits and withdrawals with relative grace. Many people don't take that into consideration because Gox got us old timers used to waiting a month or more for deposits to credit and days to cash out BTC; don't stand for it, if you can't cash out it's either incompetence or lack of funds, not worth it either way.
The biggest red flag in this step, assuming you did it correctly, is when your wires take more than a business week to credit. An exchange should have a dedicated team working on wires, and now a days most international wires credit in 24-48 hours, there is no reason for them to hold your money for more than 6 business days; otherwise you are really giving the exchange an interest free loan, and that should make you worried.
7. Who? Where?: Knowing where the exchange is located is important, there are certain countries where if you send money and get scammed, you really have nothing much you can do about it due to the current state of their regulatory environments.
Advice: Avoid Russian and Chinese exchanges at all costs. The risks outweigh any benefits when you take into account the legal system there and your non-existent options for recovery in the case of fraud or failure.
One of the key facts you need to learn before you try our an exchange is who owns it and where is the owner physically in day to day business. That bears clearing up, it doesn't really matter where the exchange is incorporated, most are incorporated in tax havens, etc. but know who the owner is, his real name and general location are important, because if he makes that information public, he clearly believes that his exchange is here to stay. Exchanges with secret owners should be a big red flag; stay away.
Just to recap, location is important, know who runs the show. Google “exchange owners name” and see what comes up.
8. NEVER KEEP FUNDS ON AN EXCHANGE LONG TERM. I think this is pretty self-explanatory and this comes from people acting like cryptocoin exchanges are banks. They are not banks, most of them are high risk environments, treat exchanges like crack dens, bring only the cash you need and take it out as soon as you have completed your business.
If you follow these steps you will have a good chance of not getting scammed, happy trading!
First let me introduce myself, my name is Pablo, I have been working in and around virtual currency for about ten years. I have been an active trader on several cryptocoin markets off an on for about 3-4 years.
Rules for Safe Trading:
1. Be cautious, be very, very cautious: You are not paranoid enough, people out there really want to steal your money.
2. Don't assume exchanges will act in your (the customers') interests, they are companies, not NGO's, they're in it to make money and many of them will walk all over you to make a buck, or save a buck. But there are some good indicators to tell the good from the bad.
3. Stay away from any exchange that offers to pay you dividends, interest, etc. just for holding your money. It either means your money is being used outside the exchange environment, which it should not be, or it’s a straight up scam. You have to be careful to differentiate an investment, where you assume risk for equity in a company with a business model, to the pseudo gambling of handing your money off to a third party with vague (and sometimes elaborate) promises of steady returns. To be safe you should generally stay away from both.
4. Customer service is your second indicator: The first thing that comes to mind when I think of Mt. Gox's customer service is “does not give a shit”. I could regale you with stories of how deeply Mt. Gox could not give a shit, way, way before it collapsed. You could hit them up with a ticket on your funds not arriving after 20 days and they would send you a canned answer, absolutely cold and basically “we'll get to it when we get to it, so fuck off.”
The reason customer service is so important is because it tells you two things: the style of the founder, and how well funded the exchange is. If the founder runs a customer centric company (as it should be), customer service will tend to be helpful, they will know that their jobs depend on your satisfaction. If customer services first job, however, is to deflect customers from the exchanges' mismanagement or incompetence, it will be clear to you from your first interaction. A support agent has to develop a thick skin when he is deflecting angry customers all day. It will show. My advice is that before you start trading anywhere, you drop support a question or two, depending on how fast they get back to you and how much room they leave for questions, you can learn a lot.
Customer service also tells you something about how well funded an exchange is. The more available customer service is, the more likely it is you are dealing with a well funded venture. Be suspicious of canned emails with references to “the wiki” or “the FAQ”. Yes, these have their place in the conversation, but the more a customer services agent talks to you like a human being, the more likely it is you are dealing with a reputable and well funded company. Because good customer service isn't cheap, and good customer service agents tend not to work for shady outfits. Working as a rep for a shady outfit wears an agent down mentally and physically, so the good ones tend not to stay, hence why bad businesses tend to have bad customer service reps.
5. Ask around, don't be afraid to look stupid: Although I have been trading at Cryptsy and Bitstamp for several years, I periodically drop the question on Bitcointalk: “Does anyone recommend Bitstamp? Anyone have a bad experience with Cryptsy?” And here I can learn a lot; depending on what feedback I am getting and what I know about this exchange from my research thus far.
Then I google “Exchange X Scam”. You have to keep an eye on the date of results, a lot will be old complaints, logically more recent ones should carry more weight, but you will pick up valuable tidbits here. People who get scammed tend to spread the word far and wide.
6. Speed: Do test buys. Deposit small amounts of currency into the exchange. If this is your first time there, it's worth the trouble to test how long it takes deposits to credit or be withdrawn. If it takes a day for them to process a 0.2 BTC withdrawal, you certainly wont want to trade 20 BTC there. A good exchange will be able to handle an influx of deposits and withdrawals with relative grace. Many people don't take that into consideration because Gox got us old timers used to waiting a month or more for deposits to credit and days to cash out BTC; don't stand for it, if you can't cash out it's either incompetence or lack of funds, not worth it either way.
The biggest red flag in this step, assuming you did it correctly, is when your wires take more than a business week to credit. An exchange should have a dedicated team working on wires, and now a days most international wires credit in 24-48 hours, there is no reason for them to hold your money for more than 6 business days; otherwise you are really giving the exchange an interest free loan, and that should make you worried.
7. Who? Where?: Knowing where the exchange is located is important, there are certain countries where if you send money and get scammed, you really have nothing much you can do about it due to the current state of their regulatory environments.
Advice: Avoid Russian and Chinese exchanges at all costs. The risks outweigh any benefits when you take into account the legal system there and your non-existent options for recovery in the case of fraud or failure.
One of the key facts you need to learn before you try our an exchange is who owns it and where is the owner physically in day to day business. That bears clearing up, it doesn't really matter where the exchange is incorporated, most are incorporated in tax havens, etc. but know who the owner is, his real name and general location are important, because if he makes that information public, he clearly believes that his exchange is here to stay. Exchanges with secret owners should be a big red flag; stay away.
Just to recap, location is important, know who runs the show. Google “exchange owners name” and see what comes up.
8. NEVER KEEP FUNDS ON AN EXCHANGE LONG TERM. I think this is pretty self-explanatory and this comes from people acting like cryptocoin exchanges are banks. They are not banks, most of them are high risk environments, treat exchanges like crack dens, bring only the cash you need and take it out as soon as you have completed your business.
If you follow these steps you will have a good chance of not getting scammed, happy trading!
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