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57 Pyrite Variants: Exchanges are now Bitcoin’s enemy

In summary: Exchanges are casinos and do not want to help anyone with bitcoin. Avoid.

There is a classic scam in the “crypto” industry: advertise with Bitcoin to bring in people, then sell them something completely different. In recent years, this decoy and exchange trick has become the core competence of “bitcoin” exchanges.

I recently visited the Australian exchange homepage btcmarkets.net: what a mess. There was a list of a few dozen identical looking “cryptos”, with Mrbitcoinexchange in second place behind something called “XRP”; there seemed to be sorting based on volume.

Incentives have driven exchanges to become casinos, and they do exactly what you’d expect from unregulated casinos. It’s not a place you ever want to send someone to.

Incentives for exchanges

Exchanges make money when you trade, not when you buy and hold. Despite the fact that bitcoin is the only real attempt to make an open source form of money, scams without a future perspective are equated under false pretenses as a wider range means more trade can take place. In fact, exchanges are paying to include new scams in their offering (the worse the project, the more money they can charge for it!) And recently they have taken the logical next step to introduce and promote their own crapcoins.

It’s a bit like a gold trader who also sells 57 types of pyrite, with higher profit margins than gold sales.

For a long time I thought exchanges were simply incompetent. Most cannot even provide fresh bitcoin addresses for deposits, batch outgoing transactions, pay decent fees, use Replace-By-Fee (RBF) or Segwit.

But I got it wrong: they don’t want to sell bitcoin. They use bitcoin to get you in, but they want you to gamble. That makes a difference: you will encounter subtle and less subtle blocks when you simply want to buy bitcoin on an exchange. If you send a friend there to buy a first bit of bitcoin there, they will likely come back with something completely different. That is no coincidence.

A level deeper it gets worse

Unfortunately, the picture gets even grittier when we take a closer look at specific exchanges.

Take Binance, for example: This Chinese-backed exchange posing as a Hong Kong exchange came out of nowhere and demonstrated the gullibility of the entire industry with fictitious trading volumes by being recognized as a respected member. They lost at least 40,000 bitcoins due to a known hack, and they also lost all personal information people sent to them as part of ‘Know-Your-Customer’ (KYC). The marketing for their own coin is aggressive. But actually they are just a kind of MtGox, only without the PHP skills or the moral scruples of Mark Karpales and with better marketing.

Coinbase is more interesting: an MBA-led “bitcoin” company that hates bitcoin. They’ve got to where they are by digging deep and investing heavily in regulatory compliance so they can operate in (almost?) Any US state. (They do little to disprove the perception that these regulations protect users, while in practice there are only guarantees for US dollar deposits). Their natural interest is in more regulation to maintain their lead, and their biggest problem is Bitcoin.