Hacker News Reader

Comment by skybrian | Hacker News Reader

How much do people trading on exchanges need to worry about counterparties giving them tainted crypto and ending up in a situation like this?

View on HN

Evidently it's something you should keep an eye out for. I find the fact that Bitcoin isn't actually a fungible token - that there are "corrupt" Bitcoins out there that need to be avoided - pretty fascinating.

Agreed it is interesting. The US dollar has a similar dynamic. The degree to which a currency is fungible should incorporate its corruptability.

With an exchange, your counterparty is the exchange.

Is that really true? On traditional exchanges, the exchange itself is a mostly neutral party, a technology-and-marketplace provider. If a clearing member becomes insolvent, the other clearing members have agreements in place to "pitch in" together to keep the whole system functional.

(Edit: to be clear, this isn't a rosy situation: it's usually a adjacent to fraud, so the SEC, CFTC, etc. pursue criminal charges; and other clearing members tend to sue the bankrupt one, letting the courts figure it out.)

The cryptocurrency "exchanges" are not structured similarly to the stock market. There's no separation of broker, matching venue and central counterparty clearing service.

It depends on the exchange. Some are peer to peer and some trade from their hot wallet.

How does a peer-to-peer exchange work? They match you with someone and then you find some way to do a swap, potentially cross-chain?

It’s not clear to me, but I’d guess that one who uses centralized exchanges would do well to focus on sites that use KYC. I’m sure not everyone would agree with that, but we still live in a world where one needs to convert crypto to fiat currency at some point, and centralized exchanges are the best way I know of to do that. Avoiding shady projects seems wise.

If the platform has verified you, it has verified everybody else there. So, the question is how reputable is the exchange.

Reply on news.ycombinator.com