Are exchanges without authentication as secure as exchanges with mandatory authentication?

Many people consider digital currency exchanges, or platforms in general where authentication is mandatory, to be an obstacle to fulfilling Bitcoin’s original idea of ​​providing a platform for anonymous peer-to-peer transactions. However, official authorities and regulators around the world continue to insist on more widespread user authentication and the use of anti-money laundering methods among digital currency platforms, citing these two policies as a means of keeping investors safe and protecting them from financial fraud. .

To Report Cointelegraph, while most of the prominent international exchanges have begun to comply with the regulations of the regulatory bodies in order not to be left out of the competition to accept digital currencies among the citizens of different countries, users still have the choice to make their transactions in exchanges that authenticate It is not mandatory in them and their privacy is largely preserved when working with these platforms; But does working in exchanges that do not have mandatory authentication mean accepting more risk and less security for traders? In the following, we will answer this question that has probably occupied the minds of some Iranian traders.

The discussion is about trust

Anonymity or not knowing the identity of digital currency traders can usually be done in two ways. The owners of centralized digital currency exchanges usually do not make authentication mandatory for their users, in order to avoid some legal pursuits and not have to answer to the authorities. As a result, users should have a lot of trust in the people who are responsible for running these exchanges.

On the other hand, there are decentralized exchanges such as “dYdX” that use trustless protocols and provide a kind of trading platform that is managed and controlled by the community itself. In these decentralized applications, even though there is no authentication, users are instilled with a sense of trust.

As a result, if you intend to operate on a platform where authentication is not mandatory, it will be very important to check the background and identify the people who run that exchange.

Nothing is hidden in the blockchain

While proponents of traditional financial systems portray digital currencies as a tool to facilitate money laundering, the number of transactions linked to illegal activities conducted with digital currencies is decreasing year by year. Using digital currencies in a way that does not require providing identity documents and authentication is a simple task; But research by the analytical platform Chainalysis shows that only 0.15% of all transactions made with digital currencies in 2021 were related to criminal activities.

In addition, the immutable data and records recorded in various blockchains allow authorities to track transactions and identify their owners, thus preventing criminals from using digital currencies, whether on authenticated platforms. Prevents forced identity or without authentication.

The immutable nature of blockchains allows authorities around the world to hunt down fraudsters and identify those involved in money laundering and concealing the source of funds from criminal activities.

Also read: Migration from Binance; Where to go for trade? Introducing alternatives

Reminder: Without having private keys, there is no digital currency

One of the most important concerns for users when working with centralized exchanges is not having full control over their assets. When you deposit your cryptocurrencies to a centralized exchange, it’s like giving your private key to the platform.

Operating in centralized exchanges whose history is not checked and does not have mandatory authentication puts users at risk of losing their capital. It is true that the operation of all centralized exchanges, whether with mandatory authentication or without authentication, requires the delivery of assets to a third party; But exchanges with mandatory authentication generally have more credibility among investors and authorities than those without authentication.

The answer to the question whether exchanges without mandatory authentication are safe or not depends on the subtle differences that we mentioned in this article. With or without authentication, digital currency investors are always vulnerable to external risks; Such as the bad intentions of the owners of centralized exchanges and the adoption of business models suspected of fraud. Keep in mind that the government does not provide special support to digital currency exchanges and their users.

In addition, activity with accounts that are not authenticated always creates restrictions for users, such as reducing the daily withdrawal limit, available tokens and other services provided in the exchange.