Nested Exchanges And Why They Aren’t Safe

By CNBCTV18.com IST (Released)

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Nested swaps don’t have a swap mechanism of their own. Instead, they use other exchanges to enable the transfer of crypto assets. Think of it as a bank, but when you deposit money, they consume that money and deposit it in another real bank. Why are they doing this? To get a finder’s fee in the transaction. Why do people opt for them? Mainly because they don’t have a rigorous KYC process and are not accountable to authority.

Regulated crypto exchanges are one of the reasons eligibles may see a merged future with digital assets. Without these KYC-based exchanges, no government entity would be aware of funds entering and leaving the country. Although this is a good sign for anarchists, it also strengthens the black market, terrorism and other criminal activities.

Naturally, malicious actors have developed several alternatives to expand this KYC-focused process. In this article, we uncover one such development known as interlocking exchanges and how they remain a danger to society as a whole.

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What are nested exchanges?

These platforms do not have their own exchange mechanism. Instead, they use other exchanges to enable the transfer of crypto assets. Think of it as a bank, but when you deposit money, they consume that money and deposit it in another real bank.

Why are they doing this? To get a finder’s fee in the transaction. Why do people opt for them? Mainly because they don’t have a rigorous KYC process and are not accountable to authority. So, if a terrorist organization wants to transfer crypto from one country to another, they can simply use a nested exchange and process the transaction without disclosing too many details.

Unlike crypto ledgers, the amount cannot be traced across all accounts because these nested exchanges work in ridiculous ways like exchanging cryptocurrencies for pocket money.

How do nested exchanges differ from decentralized exchanges?

People confuse nested exchanges with decentralized exchanges because they don’t go beyond a KYC process. The main difference is that DEXs work on smart contracts and no one keeps your cryptocurrency. With decentralized exchanges, people are not involved; it’s just algorithms, calculations, and smart contracts at work.

Additionally, each transaction can be traced back to the source account, giving us much-needed transparency that is not available with nested exchanges.

Dangers of nested exchanges

The most significant danger of nested exchanges is misuse by criminal organizations. Bad actors can convert money into cryptocurrency without too many KYC or anti-money laundering frameworks. Moreover, the funds deposited with such an exchange could be used to support these criminals. Therefore, if you knowingly use such services, you could face legal repercussions from law enforcement.

Your funds could also be blocked if the authorities decide to crack down on these service providers. Moreover, interlocking exchanges meander like legit bodies until the truth is revealed. And since they are unregulated, so there is a good chance that a rug will pull and someone will run away with your hard-earned cash.

The easiest way to tell if an exchange is nested is to look at the registration process. With nested exchanges, you don’t need to give a lot of information because there’s nothing close to the “know your customer” processes that regulated exchanges drive.

A nested exchange may also offer different rates that you can choose from. This indicates that it is using nested accounts with several legit exchanges.

Finally, you can also try to track your funds. If your coins are sent to another exchange’s wallet address, this is clearly a nested service.

Conclusion

Nested exchanges are a nuisance that governments and regulated exchanges are working to eliminate. It’s the only one that doesn’t have a singular advantage unless you’re involved in criminal activity. And while cryptocurrencies are designed to offer privacy, they were never intended to offer the criminal anonymity that these nested exchanges try to encourage.

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Nested Exchanges And Why They Aren’t Safe


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