“They seem too much of a gamble to me”. 3 Ways Dishonest Cryptocurrency Exchange Services Cheat Their Clients

Their websites are finely designed. Their services look exceptionally convenient and nice, but what you see behind the shiny surface is not necessarily good intention. Everyone earns a living the way they can, and though crypto exchange services are not actually trading platforms, sometimes they look like they are – not for you, but for themselves, trying to profit from your money in all possible ways. There is so much scam in the crypto exchange business that even special hashtags on social media have emerged. ChangeNOW carried out a special investigation to uncover the dirty schemes some of our colleagues use to steal your money. Let’s take a look at them.

Disclaimer: you might get pissed off!  

Highlights:

  • When several hours delays in exchange occur, the rates may change. If they fall, you get less, but if they rise, the cryptocurrency exchange services may take the profit you fairly deserve;
  • If you send a large amount of money, they ask you to complete verification procedures and make them last forever – so you don’t even know if you’ll receive your money back at all;
  • Some of the services fool you with zero-fee promises and overestimated exchange rates, which allows them to charge you much more that you could even expect.

Way 1 – Short delays, silent scam  

Let’s look at a typical situation of how you may lose your money due to a delay during the exchange. Our imaginary victim friend John enters a crypto exchange website, sends his BTC and expects ETH to drop into his wallet in 30 minutes. But as the clock keeps ticking for an hour or two, John goes for a walk and takes a nap. 5 hours after nothing happens. John starts to worry and attacks the support team, who refer to some technical troubles which are going to be fixed shortly. While our poor guy is watching his favorite TV series, South Korea proposes a bill to ban all crypto exchanges, and Ethereum goes down. John gets 30 ETH instead of 40 expected.

Is this fraud? Of course not. The market changed, and so did the sum John has received. But here’s the first question: why did this delay happen? Technical issues out of an exchange service’s reach do happen sometimes. But we have a reason to claim that some services may cause them deliberately – in order to keep your money to wait and see where the market goes. If it goes down, you get less. According to the information we have at ChangeNOW and several social media reports, in case the market rises, some of the crypto exchange services keep your profit and send you the initially estimated amount. “They seem too much of a gamble to me” – said one of the real exchange’s victims.

This is a tricky one to prove – because if John gets as much money as he expected, what’s the probability that he goes to see if the market rose and he got less than he could? And if he got a little less, how possible is it that he takes his time to tell Reddit about this? There is no statistics on such cases to investigate, which makes this way extremely convenient to scam you. So, whenever you use crypto exchange services, we urge you to always check the difference between the actual rate and what the service sends you. At ChangeNOW, if the rate rises during the exchange, you always get the whole gain. Any time issues with the exchange occur, we work with each and every case to avoid serious delays. But most often, the exchange time is 5-10 minutes. 

Way 2 – Long delays, bold fraud

Our second crypto exchange victim is Lizzy, and her heartbreaking story lasted a lot longer than John’s. This is an entirely real story from the social media – names and dates are changed.

On January 25, Lizzy swaps 1 BTC to XMR through one of the popular exchange services to see if it goes fine, and asks the support team if there would be no problem with sending a lot more BTC. They said no. On January 26, Lizzy sends her bitcoins to the same service – and this is where her life turned to frustration and despair.

As a common practice, the exchange service asked Lizzy to go through the KYC procedure – a measure to define potential frauds and money laundering. But a selfie and a pile of documents, bank statements, and snapshots of her wallet did not satisfy the service, as the transaction was marked suspicious. Security team scheduled Lizzy for a Skype interview, which they skipped several times. After her transaction has been finally added to the whitelist, she found herself not able to access her profile at the exchange platform. After days of being ignored, she finally got her money.

Lizzy’s case finished with a happy end. However, numerous social media reports show that your money may just dissolve in the bowels of fraudulent crypto exchange services. God only knows where it goes in the end.

There is also another way exchange platforms scam people through KYC. If you want to exchange a big sum of money and the service asks you to pass the verification procedure, you cannot refuse without losing money. If you don’t want to show your documents and do this exchange anymore, they will not give your money back until you agree to do KYC. Basically, this is appropriation of your money covered by KYC. At ChangeNOW, we never do this – if you refuse to do the verification, you get your money right back. 

One interesting and sad detail is that you may suffer from such service’s behavior while not even directly using it. Your cryptocurrency wallet may partner with such unscrupulous exchanges – they operate some of their transactions. So please keep that in mind while choosing a wallet to store your coins.

Way 3 – Scamming your expectations

For the third case, we don’t even know enough names to list all the victims – because the list of options to scam you with exchange rates and fees is extremely long. Let’s take a brief look at how a general exchange service transaction goes – to see what parts of it are most profitable for dishonest operators.

When you enter the amount of money you want to exchange, the platform shows you the estimated rate – the sum of money you are supposed to get after the exchange. When you send your cryptocurrency, a small part of it automatically goes to the blockchain that operates it – this is called a network fee. Then the exchange platform does its job and charges its own fee. And finally, when the cryptocurrency is sent back to you, its blockchain takes another network fee.

Where in this algorithm is it most comfortable to cheat you?

  • Overvalued estimated rate. Even if the transaction is not delayed and the market remains still, you may get much less than promised – because exchange services charge you several hidden fees which you have not been warned of. At ChangeNOW, what you get is always maximum close to 100% of the estimated rate. The tests we performed for this investigation showed that some of the other exchange services only return 95-98% of the estimated rate.
  • “Cancelled” network fees. Some exchange platforms may claim they have zero network fees, but as we know, those fees are paid to the blockchain – something an exchange service cannot control. It’s certain that this fee is paid – the question is by who. If someone doesn’t ask you for a piece of bread directly, be sure they will try to steal it from your kitchen.
  • Gigantic commissions. Several reports from the scammed users show they were charged up 80% commissions, explained as “expenses for blockchain congestions”. Such exchanges don’t even bother themselves making up a more credible explanation!

A feature of certain blockchains is that whenever you perform a transaction, you may indicate your own network fee size, and the bigger it is, the faster your transaction will be processed. Most exchange services put their own network fee size – so you cannot change it. How do they use this?

  • Overvalued network fees. Exchange platforms may tell you they pay a good network fee to the blockchain, which is minimal possible in reality. What they do is they take this difference, and then wait a longer period while transaction is processed – and if the cryptocurrency rates go up, they take the profit (remember the first paragraph?).

Be careful – and report scam!

You may have recognized yourself in one of our stories’ victims. If so, we are sorry. If not, please always check the reputation of exchange services you use – not to fall for the bait of frauds. We hope this guide will help you to recognize any potential scam. And if you face it, don’t forget to report. Together, we will make the market of crypto exchange a place of trust!