It’s been 14 years since Bitcoin’s inception, and since then, as centralized crypto exchanges (CEXs) proliferated, many users’ perceptions of cryptocurrencies have changed significantly.
Mountains of customer data
Buying bitcoin has changed a lot since the first crypto enthusiasts traded directly through forums. Now the market is dominated by large centralized exchanges, and institutional investors with multibillion-dollar capital participate in the auctions. Centralized trading platforms, having the necessary resources, have perfected the process of attracting new customers, demonstrating with might and main that trading itself is not something mysterious and complicated. To do this, they use colorful, fairly simple and intuitive interfaces that are as friendly as possible for an inexperienced beginner.
As the capitalization of the largest marketplaces grew, regulators around the world began to press on exchanges to collect personal data from their customers to verify their identity. If earlier the same type of CEX players were presented on the market, then with increased regulatory pressure, some sites reconciled themselves to the new requirements of legislators and began to collect user data.
To differentiate between these exchanges, Bitcoin Magazine experts offer use the term VEX for centralized exchanges that require verification and provision of personal data by users. CEX is a broader concept. In addition to personal information, VEX has all the necessary tools to control funds and operations on the site.
The convenience of major VEXs such as Coinbase and Binance has greatly skewed many users’ perceptions of privacy, anonymity, and indeed P2P alternatives to buying bitcoin. In the end, a simple and understandable interface and proper marketing discouraged customers from massively using “complex” alternatives, despite all the advantages that could be obtained.
Why use the relatively complicated way to buy or sell bitcoin through a third-party P2P platform with low liquidity when there are very simple, understandable and convenient VEX alternatives with extremely high and constant liquidity? Yes, and non-custodial storage of cryptocurrency requires a certain “entry threshold” on the part of the user. It is much easier to trust third parties, albeit with a bunch of less obvious risks. But in reality, there are so many of these risks that the experts who proposed the term VEX say that this is the worst possible alternative.
The problem with the exchanges
The main problem with VEX is a serious lack of privacy and lack of anonymity. Their clients are forced to provide identification information, such as passport data, because of which it will always be possible to associate the purchased bitcoin with a specific user.
Thus, the real username will be forever tied to this amount of bitcoins and all transactions associated with them. Even if you pass them through the “mixer”, the record in the blockchain will still leave this information open, and the authorities of individual countries in the relevant jurisdictions may recognize your activity as criminal, regardless of your intentions.
And of course, because of the “digital footprint” transferred from paper, email, passwords, mobile phone numbers and bank details entrusted to the VEX site, you yourself are at risk from scammers. Through hacker attacks or information leaks by exchange employees, personal data can easily be obtained by attackers who can harm you. In addition, as a result of a hacker attack, you can simply lose the savings that were stored on the exchange, since you, in fact, are not the owner of the private keys.
Unfortunately, many VEX representatives often make the following argument: personal information is collected in the interests of the users themselves, and precisely in order to protect them. But, in fact, personal data is a target for cybercriminals. Therefore, the ideas of many users about cryptocurrency are distorted, experts say. Increasingly, bitcoin is associated with hacks, bankruptcies, unreliability, protracted drops in value, partly caused by CEX collapses. But these are not the only misconceptions of users regarding VEX, and the situation with FTX is a vivid illustration of this.
Sam Bankman-Fried and his FTX crypto exchange is one of the examples where VEX is shown in the most negative news background. By and large, the scheme that was used was trivial and simple. By some data Bankman-Fried took customer funds and spent them left and right. He invested in expensive luxury real estate, made venture investments and political donations. Time wrote that Bankman-Fried even financed the incumbent US President Joe Biden. In general, the money was not spent on the most obvious expenses for users.
Did the clients know about it? Of course not. So what is the end result? People invested their money with the confidence that they invested in cryptocurrency. They were provided with general information that operations with assets (purchase / sale) were being carried out – in any case, it was displayed on the screens of their gadgets. But in reality, a significant proportion of the coins, which, in theory, was supposed to provide liquidity and generate income for investors, was, according to some information, reinvested by the company in expensive real estate and as political contributions. Therefore, the perception of users about the ownership of cryptocurrency through a VEX agent in practice may turn out to be erroneous.
When an end user uses VEX, it increases liquidity on such a platform. Also, the purchase of bitcoin through VEX is associated with tracking the fiat money earned by the user, which both scammers and many regulators are interested in at the same time (for example, as part of fiscal policy, combating money laundering or strengthening cash flow control).
The result of supporting VEX will be to limit the entry of fiat money, as well as the rejection of the conceptual ideology underlying the Bitcoin network as a peer-to-peer solution that bypasses financial intermediaries.
In general, the problems of CEX and VEX will be partially resolved. Cryptocurrency is still little explored, and technology continues to improve. This applies to everything connected with it. Exchanges in this case are no exception. Gradually, the whole concept of bitcoin as a completely anonymous currency within the framework of trading on exchanges and the involvement of legislative bodies becomes almost impossible. Therefore, if you are very concerned about the problem of disclosing personal information, then you should look for alternative platforms for storing, exchanging and trading cryptocurrencies.
This material and the information in it does not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.
I am an experienced journalist, writer, and editor with a passion for finance and business news. I have been working in the journalism field for over 6 years, covering a variety of topics from finance to technology. As an author at World Stock Market, I specialize in finance business-related topics.