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In the physical world, a bank is a financial institution licensed to receive deposits, transfer funds, and store money for its clients. Banks can legally offer the right to exchange one fiat currency for another to its customers.

In the digital world, a cryptocurrency exchange provides services similar to banking to their clients; additionally, exchanges function as similar to a stock exchange.

What is a cryptocurrency exchange?

A cryptocurrency exchange is a borderline illegal online marketplace where users can exchange one kind of digital asset for another based on the market value of the given assets. The problem with cryptocurrency exchanges is that they often facilitate the trade of unregistered securities, are often used to launder money, and have limited, if any, AML/KYC so that they can evade the law.

Cryptocurrency exchanges played a significant role in the ICO boom of 2017. Cryptocurrency exchanges were eager for new projects with no real business model, product, or future to launch so that they could list these projects on their exchanges and rake in millions of dollars in transaction fees from these trading pairs. That being said, you can think of a cryptocurrency exchange as a bucket shop. 

What is a cryptocurrency?

There are a few features that distinguish digital currencies from cryptocurrencies.

Cryptocurrencies are coins and tokens with no real purpose–they do not have utility and they were created for nothing more than speculative purposes and to facilitate crime.

Unlike digital currencies, most cryptocurrencies do not comply with law; in fact, some cryptocurrencies were even made to evade the law. Privacy coins are cryptocurrencies specifically designed to facilitate crime by obfuscating the path a transaction has traveled from sender to recipient. 

Ultimately, cryptocurrencies are tools used to enable crime, whether that be fraud, money laundering, or racketeering, while digital currencies are protocols that enable the digitization of data and money.

How to identify a cryptocurrency exchange 

Cryptocurrency exchanges have a few defining characteristics; crypto exchanges typically have little to no AML/KYC verification at sign up, they typically list several altcoins and shitcoins shortly after the ICO, and what might be the most defining characteristic about these exchanges is that law enforcement officials around the globe have started cracking down on them.

There is a Crypto Crime Cartel that operates cryptocurrency exchanges to commit fraud, market manipulation, and money laundering. However, law enforcement has caught on to their activities and has begun pressing charges against their exchanges. Law enforcement is going to continue pursuing these bad actors and unless they change their ways and become compliant, then they are likely to receive a cease and desist order.

What are the risks of using cryptocurrency exchanges?

If you are using a cryptocurrency exchange you face many risks; to name a few of the many risks you face when trading on a cryptocurrency exchange:

• Law enforcement can shut down the exchange and because the exchange operates in a legally grey area they may not be obligated to return your money. 
• You could end up losing your money from speculating on cryptocurrencies and having the rug pulled on you by the project’s founding-team because the value of their coin or token relied on the greater fools theory and you were the greater fool.
• You could end up with your funds getting locked in the exchange, and you will be unable to withdraw or sell your cryptocurrency. This can happen because the cryptocurrency exchange you are using has been seized by law enforcement or is under investigation by law enforcement officials.

When it comes to cryptocurrency and cryptocurrency exchanges, you should proceed with caution. Working with a cryptocurrency or cryptocurrency exchange is nothing more than a gamble that could end badly for both you and the exchange.

To steer clear from this trouble, you should only use digital currency exchanges and digital currencies like Bitcoin (BSV).

2020 is shaping up to be a huge year in the world of Bitcoin. Not only will it be the year Bitcoin SV (BSV) returns to its original design with the Genesis upgrade, but the implementation of the EU Fifth Money Laundering Directive (5MLD) will bring sorely needed regulation to the cryptocurrency world. As legal experts have informed CoinGeek, these new anti-money laundering and counter terrorist financing (AML/CTF) laws will completely change the face of the market.

The 5MLD are an expansion of current AML/CTF regulations into the cryptocurrency space, and were designed to protect against potential abuses of the technology by criminal actors. Experts expect the U.K. to implement 5MLD, and the EU has required member states to adopt the regulations by January 10, 2020.

With the new rules, digital asset exchanges and custodian wallets, of which Binance is a great example, are expected to comply with AML/CTF regulations. As Binance keeps offices in Malta, an EU state, they will be required to comply with the new regime. Experts tell us:

Those who fall into these categories must comply with obligations on customer due diligence measures, risk assessments and reporting suspicious activity. They will also be required to register with a relevant supervisor which is expected to be the Financial Conduct Authority (FCA).

This can specifically be a threat to Binance’s current business model, which lacks any serious AML/CTF protocols. The exchange has shown a history of trying to evade stricter regulation, like when they chose to leave Japan in favor of Malta in 2018. But even if they try the same trick again, these regulations will still trip them up.

Experts note that the 5MLD are potentially going to gain additional provisions in the U.K. to protect against exchanges that try to flee their regulations. These additional requirements, they note, “could relate to bringing further cryptoassets service provides within scope of the U.K. anti-money laundering and counter-terrorist financing regime and dealing with cross-border risks posed by cryptoassets (for example, the risk that firms based outside the U.K. would avoid U.K. regulatory standards).

Those same requirements will cause huge problems for other exchanges working in the shadows, like Kraken, Shapeshift and BitMex. All of these exchanges have done things that would make regulators question their basic practices, and what criminality they may have helped facilitate.

Stories like Crypto Capital, who have links to almost all of these exchanges and has been accused of money laundering for the Colombian drug cartel, have pushed regulators to get serious about regulating the digital asset space. Exchanges have felt comfortable working with accused criminals because they have had no regard for the law whatsoever, but 5MLD and other regulations to come will change that.

In a statement to CoinGeek, Kraken clarified that it had “stopped working with them [Crypto Capital] in early 2017, and only worked with them for a short period of time.”

As common sense regulations become the norm and exchanges are held to account, operating without oversight will become a thing of the past and states will now move to protect investors from being swept up in these crimes.

As Satoshi originally intended, BSV has been designed to keep everybody accountable, adhering to regulations and shining a spotlight on criminality. Exchanges that have stuck with BSV are highly likely to have recognized its utility, respect its adherence to the law, and can be considered reputable themselves. Meanwhile, exchanges like Binance and Kraken have delisted BSV citing their problems with Dr. Craig Wright. In reality, they have a problem with the truth Wright has spoken, citing the already proven criminality the crypto exchange world has helped to create.

Editor’s note: This article has been updated with Kraken’s statement.

News that Crypto Capital President Ivan Manuel Molina had been detained by Polish authorities on October 24 sent shockwaves through the industry, and potentially made a few big exchanges nervous. Bitfinex, who already have enough problems on their hands, have now come out to clarify their relationship with the banking outfit.

In a statement posted October 25, Bitfinex lays out their prior relationship with Crypto Capital, and how much they shouldn’t be tied up in Molina’s legal problems. After detailing the current legal problems of Molina and his colleague, Oz Yosef, they note, “As has already been mentioned publicly in court filings, Crypto Capital processed certain funds for and on behalf of Bitfinex for several years.” Yosef was later confirmed to also be indicted by the U.S. Attorney’s Office of the Southern District of New York by CoinDesk.

They go on to explain that they used Crypto Capital’s services specifically due to promises made that “proved to be false.” They list out their perceived faith in the bank’s “integrity, banking expertise, robust compliance programme and financial licences,” and ultimately the ability of the banking outfit to handle Bitfinex transactions.

Finally, they distance themselves from Crypto Capital as hard as they can:

Bitfinex is the victim of a fraud and is making its position clear to the relevant authorities, including those in Poland and the United States. We cannot speak about Crypto Capital’s other clients, but any suggestion that Crypto Capital laundered drug proceeds or any other illicit funds at the behest of Bitfinex or its customers is categorically false.

This is the expected response from Bitfinex, as their relationship with Crypto Capital fell apart long ago. They’ve repeatedly blamed Crypto Capital’s legal problems for their funds being seized by various authorities, causing the exchange to be at an $850 million loss. They are currently working through the courts to discover where those funds may be, and if they have any ability to get them back.

Molina’s accused crimes, including money laundering for the Colombian drug trade, have cranked up the pressure on a number of exchanges tied to Crypto Capital, including Binance, Kraken and BitMEX. As Bitfinex claims, it’s possible none of them actively collaborated in money laundering for drug cartels. It remains a fact though that money Bitfinex claims is rightfully theirs is currently being held up by its relationship to those alleged crimes.

Even if Bitfinex had no knowledge of Crypto Capital’s possible crimes, this is going to be a headache when regulators finally come calling. Working with an incompetent banking outfit, causing the potential loss of $850 million, is already a huge problem. Explaining how they allowed customer funds to get mixed up with the illegal international drug trade and somehow didn’t know about it will be an even bigger one, and not one Bitfinex will easily escape.

The dominoes have started to fall for cryptocurrency exchanges choosing to operate in the shadows. Polish news site wPolityce.pl reported Crypto Capital President Ivan Manuel Molina was arrested on October 24 in connection to money laundering charges, causing a huge potential problem for Bitfinex, Binance, and BitMEX.

Crypto Capital has previously been established as the banking partner for many of the biggest exchanges in the world, having been named as Bitfinex’s banking partner after losing their Wells Fargo accounts, but also being tied to failed exchange QuadrigaCX as well as Binance, Kraken and BitMEX. Although they’ve helped these exchanges with their money, they’ve also been a consistent source of headaches, allegedly being part of why Bitfinex had $850 million go missing.

A representative for Kraken clarified to CoinGeek that the firm has not worked with Crypto Capital since 2017.

The charges against Molina now help fill out the story of what those exchanges might have been doing by partnering with Crypto Capital. Another Polish outlet, RMF24, notes Molina is accused of helping them with “money laundering Colombian drug cartels through the cryptocurrency exchange.”

The hundreds of millions of dollars entrusted to the banking outfit, some of which Bitfinex probably hoped they would get back, has apparently also been seized by Polish authorities. The message is becoming clear: exchanges and their banking partners that run afoul of the law have everything to lose.

The next question will be, what does this mean for the exchanges? Bitfinex is most notably already under investigation for the $850 million loss, and what they might have done with their sister company Tether to cover it up, allegedly printing hundreds of millions to cover their tracks.

They’ve recently tried to force Crypto Capital to reveal the location of their accounts, but with $350 million seized for money laundering, it’s unlikely there’s much left there. Add heightening regulatory scrutiny to the mix, and Bitfinex is sees bad times ahead.

For the other exchanges tied to Crypto Capital, it’s just a matter of time until they have nowhere left to hide. Binance and Kraken are both notable for attempting to evade regulation in the past, but with Columbian drugs now part of the story, they will have a harder time hiding from the truth. What we’re they using Crypto Capital for, and how long until they are defending themselves in a court of law? If Molina starts cooperating with Polish prosecutors, that day could be very soon.

Editor’s note: This article has been updated to add Kraken’s statement.

Analysts believe that Amazon is quite likely to launch its own cryptocurrency to compete with Facebook’s Libra, a new study by intelligence company Cindicator has indicated. It revealed that 22.6% of the analysts polled believe the e-commerce giant will launch a crypto, with 14% backing Google to make a similar move and 10% backing Apple.

The study looked at Libra’s competitors in the race to become a global currency, despite many experts calling out the project for its centralization. According to the analysts, some of Libra’s rivals are Telegram’s crypto project, China’s expected central bank digital currency, Binance’s open blockchain project Venus and the Tokenized Asset Portfolio on MakerDAO.

The analysts also disclosed that they believe Libra, which Facebook admitted could be a big failure, may face competition from Facebook’s tech rivals. In the past, tech giants have been tied with crypto projects, but nothing has materialized yet. The analysts believe that the Jeff Bezos-led Amazon is the most likely to launch a crypto project. Amazon’s line of business would make it a suitable candidate for crypto, but the company hasn’t made any known strides in this area.

Google, Apple, Walmart, Microsoft, Alibaba, Samsung and IBM were the other tech giants that the analysts believe could launch competing crypto projects.

The analysts also singled out Libra’s centralized nature as the biggest reason it’s likely to fail. Other reasons cited include lack of trust in Facebook and general privacy reasons.

While Amazon has yet to make any concrete move involving crypto, it certainly has the resources and the required customer base to do so. In fact, controversial Binance CEO Changpeng Zhao said earlier this year that Amazon’s entry into the crypto industry is inevitable. However, would it really matter or would it be just an exercise in futility? Facebook’s experience suggests it would be the latter.

For the large corporations, any crypto project they engage in would have to be highly centralized, ensuring that these companies have an unquestionable say on the supply and use of the crypto. A centralized crypto, such as Libra, fails to observe one of the most basic ethos set by Satoshi Nakamoto when he launched Bitcoin a decade ago.

An executive board member of the European Central Bank called out Libra, and by extension any other centralized crypto project, as cartel-like. Giving the power of money supply to a few companies, the same companies that have time and again been accused of mishandling user data would be foolhardy.

Ever since social media giant Facebook announced that it would launch its own crypto project, a host of national and international authorities have voiced their concerns. The latest is a high-ranking executive at the European Central Bank (ECB) who recently slammed Libra, describing its proposed ecosystem a ‘siren call.’ Libra will be controlled by an organized cartel of multinational firms and will not be a real crypto, the exec stated.

Luxembourg lawyer and ECB executive board member Yves Mersch called Facebook out on its crypto whose central governance will be its greatest impediment. Speaking at the European System of Central Banks’ legal conference, Mersch outlined why Libra can’t be trusted to be a global crypto.

To begin with, Libra coins will be issued by the Libra Association – a group of global players in the fields of payments, technology, ecommerce, and telecommunications. The Libra Association will control the Libra blockchain and collect the digital money equivalent of seignorage income on Libra.

Mersch then went on to outline how the Libra ecosystem will work, including the role of the fully-owned Facebook subsidiary Calibra and the arbitrage power of the Libra Association Council. He criticized the distribution model of the Libra currency, with Facebook having the sole and unchallenged authority to decide which companies get the currency for redistribution. All this while the company describes Libra as a global currency.

He added, “With such a set-up, it is difficult to discern the foundational promises of decentralization and disintermediation normally associated with cryptocurrencies and other digital currencies.”

Mersch also raised an issue that many other policy makers have also been vocal about: the trustworthiness of Facebook with sensitive financial data. He stated, “Conglomerates of corporate entities, on the other hand, are only accountable to their shareholders and members. They have privileged access to private data that they can abusively monetise. And they have complete control over the currency distribution network. They can hardly be seen as repositories of public trust or legitimate issuers of instruments with the attributes of ‘money.’”

Yet, for all his outstanding dissection of the challenges that plague the fake cryptocurrency that Libra is, Mersch still went on to undermine every other cryptocurrency as well. According to him, a currency can only “inspire trust and fulfil its key socioeconomic functions if it is backed by an independent but accountable public institution.”

“So the notion of stateless money is an aberration with no solid foundation in human experience,” he added.

Mersch is the latest to attack Libra, with U.S. lawmakers having criticized the currency repeatedly over the past few months. In August, the chair of the House Financial Services Committee in the U.S. Congress visited Switzerland to meet the regulators who’ll oversee Libra and upon return to the U.S., she stated that her anti-Libra stance hadn’t changed a bit.