The cryptocurrency was created for privacy and animosity. This meant that scammers, fraudsters, and other cybercriminals can use them to launder funds, finance terrorism, and pay for illegal items on the dark web. This realization pushed governments to impose laws on large, centralized exchanges. If you want to sign up on highly liquid CEXs and trade large amounts of cryptocurrency within seconds, you need to sign up and provide personal identification details for account verification. This means that money launderers, scammers, and other cybercriminals can be traced digitally. The way they get around this regulation is by trading cryptocurrency with nested exchanges. If you don’t know what nested exchanges are, keep reading. We have explained it in detail in this article.
What is a nested exchange?
A nested cryptocurrency exchange is a platform that serves as a middleman between users and crypto service providers. Ideally, the nested exchange will open an account on CEXs or DEXs and help its customers to facilitate trades and transactions on the platform. Nested exchanges do not (if rarely) require any KYC forms or agreements. They are only interested in completing transactions as fast as possible. Nested exchanges are the perfect platforms for money launderers, scammers, kidnappers, and cybercriminals. They can easily send any cryptocurrency they acquire illegally to the nested exchange and then get the value in USD/their local currency.
Dangers of a nested exchange
Just like anything on the dark web, transactions with nested exchanges are not guaranteed. Most nested exchanges operate on a referral or trust basis. The owner of the crypto assets trusts that the operator of the nested exchange will pay him his money. If it so happens that the exchange operator decides to shut down and abscond with the investor funds, there is no way of tracing him and you cannot report to the authorities.
Likely involved in illicit activities
The people patronizing nested exchanges are mostly criminals who would rather not go through direct channels. If you are trading with a nested exchange, you might be supporting illicit activities that help fund money laundering, terrorism, kidnapping, and other clandestine crimes.
Nested exchanges are not registered. In certain countries, they are outrightly and banks are not allowed to process their transactions. If you sell or buy crypto on nested exchanges, the government could sanction you with fines, or jail time in extreme cases
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Nested exchanges Vs Decentralized exchanges
Most people can easily take nested exchanges for decentralized exchanges because both of them do not require registration. However, they are completely different. With nested exchanges, the exchange will take custody of your cryptocurrency and give you its amount in fiat or vice versa. It will then use the crypto for trading or other transactions on established exchanges. With decentralized exchanges, the buyers will buy from sellers directly and sellers will sell to buyers directly. For more advanced DEXs, the buyers and sellers can trade against the liquidity pool.
You can easily spot a nest exchange when the UI of the website does not clearly show where the trade is taking place. There is also no clear statement that trading is supported or legalized on its platform. You are likely to see a bunch of sales copies and instructions showing you how to handle transactions only. You can trace the wallet address of the exchange to see if it is associated with another exchange.
Nesting is not a new concept and banks often have a lot of nesting platforms amongst their customers. However, you should always be careful when dealing with nested exchanges. They are not regulated and you could easily lose your funds to cyber theft. The best place to trade your cryptocurrency is on an approved centralized or decentralized exchange.