Cryptocurrency’s lack of regulations means there are no set guidelines for how an exchange should behave. This has led to several exchanges engaging in unfair and undesirable tactics for their own gain. Often, their bad practices will inadvertently punish customers, but most of these practices have simple solutions that most exchanges could implement today.
Overcharging for Withdrawals
Many exchanges will charge a somewhat high rate for withdrawing specific coins. For instance, on KuCoin withdrawing any amount of VeChain (VEN) costs 2 VEN. At the moment that is equal to $11.26.
Withdrawal fees are often manually chosen by the exchanges as a means of punishing small-time traders, forcing them to keep their funds on the exchange. If a trader only owns 10 VEN, they are not going to bother withdrawing if they lose 20% of their profits.
The solution to this is simple. Exchanges should not be applying a withdrawal fee, meaning that traders only pay the transaction fee. Most coins and tokens have low transaction fees, so small traders would not feel the pressure to keep their money on an exchange.
Somebody might argue that exchanges need to charge higher withdrawal rates so that they can make money, but this is not the case. Exchanges can make enough money through advertising, and if they have their own token – which most exchanges do – then that will establish itself as a reasonable income too. This way no trader is punished.
Taking Weeks (Or Months) to Verify a User
The verification process for some exchanges can be painfully long. Bittrex and Kraken are major culprits of this, with their verification process taking up to months, but other exchanges do it too. In many instances, while you wait for verification, you are not permitted to make any trades whatsoever. Long waiting times lead to people missing out on opportunities to make a profit or to sell an asset which is quickly losing value. Sometimes, even after waiting for months, you get an email saying that the exchange didn’t accept your documentation and therefore has not verified you, meaning you have essentially wasted months on nothing.
The solution to this is to process verifications faster by hiring more staff or implementing an automated service. Of course, this is not an easy solution as it relies on exchanges having enough money to do so. There is another, less orthodox solution.
If you have to wait a long time to get verified, then you should be compensated. If an exchange has its own coin such as Binance coin (BNB) or KuCoin Shares (KCS), then the user should receive a small sum of those. They could even compensate them with any coin that the exchange holds. It does not need to be a significant amount. Many traders would be happy with compensation of around $5.00, and a gesture like this would show that the exchange has a level of respect for its users.
Temporarily Closing Trading of Particular Coins (Sometimes Without Warning)
Some exchanges are notorious for disallowing the trading of specific coins for indefinite amounts of time without warning. This is common for smaller exchanges and often happens when a particular coin rises in value, meaning that the exchange does not have enough assets to facilitate transactions. The act of closing trading means that the exchange gets to hold onto your money during times when you would likely want to sell.
The solution to this is simply not doing it! Exchanges which do not have enough assets to support their clientele should not be running – it is harmful to the community. If a situation arises where the exchange looks like it will not be able to facilitate trades, then they should announce it to their customers, giving them forewarning of what might happen in the future.
Of course, there will still be times when a coin or trading pair needs to be temporarily shut down for maintenance, but a three-day warning in advance would be sufficient.
Holding Your Funds for an Indefinite Amount of Time
Some exchanges will hold your money for an indefinite amount of time. Sometimes this is because they are not allowing withdrawals for some coins. Binance did this with IOTA. Sometimes, there won’t even be a clear reason and the exchange will just keep your money locked away. Cryptopia had this problem recently when it prevented withdrawals for some people.
The solution here is honesty. More often than not, the reason for not being able to withdraw is technical in nature but exchanges should not ever hold people’s money without regular communications. People need to know that the exchange is making a conscious effort to unlock their money.
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Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.