I woke up and found that another new exchange was hacked. In fact, DEX hacks are common, but CEX hacks are relatively rare. CEX scams are the mainstream. I don’t want to discuss the process and details, as there are many of them online. I just want to share the pitfalls I have encountered in the past ten years and my current thoughts. I hope it will be helpful to newcomers. If you find it useful, please follow me!
In 2013, I plunged into the world of cryptocurrency, a world full of mystery and opportunities. At that time, the cryptocurrency world was far less well-known than it is today, but it was like an unpolished jade, attracting a group of pioneers who dared to take risks. The first exchange I registered, Bit Era, may sound very unfamiliar to many new friends in the circle today. But if you mention AEX Anyin, which later ran away, many old leeks will be shocked. It was a memory full of bitterness and lessons. Bit Era also had its own glorious moments in the cryptocurrency circle at that time. It was established in 2013 and is one of the medium-sized exchanges with a long history in the cryptocurrency circle. The founder Huang Tianwei has rich experience in the Internet industry and has worked in Tencent. In the early days, it provided a relatively convenient trading place for cryptocurrency enthusiasts, allowing everyone to participate in the trading of digital currencies. At that time, there were relatively few types of digital currencies traded, and the market was far less complicated than it is now, but it was full of infinite possibilities.
2017 was a watershed year for the cryptocurrency industry. The September 4th incident was like a bombshell, causing a storm in the cryptocurrency industry. At that time, the People's Bank of China and seven other ministries and commissions jointly issued an announcement on preventing the risks of token issuance and financing, clearly stating that ICO (initial coin offering) was an act of illegal public financing without approval, and was suspected of illegal issuance of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities. The release of this announcement instantly plunged the entire cryptocurrency industry into panic. The price of Bitcoin plummeted by 32%, Litecoin plummeted by 57.3%, and the prices of many digital currencies also plummeted. Under this powerful regulatory storm, domestic digital currency exchanges are facing unprecedented challenges. Well-known exchanges such as Bitcoin China, Yunbi.com, OKCoin and Huobi have shut down their RMB businesses and transferred their businesses overseas. This move marks a huge change in the pattern of the domestic digital currency trading market. Many small exchanges went bankrupt in this storm, and countless investors lost all their money.
However, in this industry reshuffle, Binance has emerged as the biggest winner. Binance was founded on July 14, 2017, and was ranked only outside the top 20 in the global digital exchanges in the early days. Because its founder, Zhao Changpeng, is a Chinese-Canadian, the company's servers are set up overseas, and it focuses on currency-to-currency transactions, it was not greatly affected by the "94" supervision. Its rich trading varieties, extremely low handling fees, and user-friendly interface design have attracted the attention of many investors. In just six months, the number of Binance users exceeded 5 million, making it one of the world's largest digital currency exchanges.
In 2019, as the policy environment became relatively relaxed, some domestic exchanges that had once gone overseas seemed to see hope of returning, and they changed their appearances and tried to get a share of the domestic market again. Anyin, Hufu, Zhongbi and other exchanges are among them. They returned with a new attitude and business model, attracting the attention of many old investors. However, the good times did not last long. These exchanges did not develop steadily as people expected, but instead encountered problems one after another, and eventually ran away.
The absconding of these exchanges has brought great negative impact to the cryptocurrency circle. Many investors’ trust in digital currency exchanges has dropped to the freezing point, and the development of the entire industry has also been seriously hindered.
After years of working in the cryptocurrency circle, I have experienced the ups and downs of many exchanges, especially the painful lessons brought by those runaway incidents, which gave me an unprecedented deep understanding of asset security. A rumor about Ouyi has become an important opportunity for me to change my asset allocation concept. During that time, it was rumored in the cryptocurrency circle that Lao Xu of Ouyi was invited to have tea. Although this is just an unconfirmed rumor, in the cryptocurrency market full of uncertainty, any disturbance may cause an uproar. As one of the top exchanges in the cryptocurrency circle, Ouyi has a large user base and a large amount of transaction data. Its every move affects the hearts of countless investors. When this rumor came out, the cryptocurrency circle instantly fell into a panic. Many investors began to worry about the safety of their assets on Ouyi and took action. Some investors hurriedly withdrew their assets from Ouyi and transferred them to other places they thought were safer; some investors began to pay close attention to Ouyi's dynamics, trying to find clues from various information to judge the authenticity of this rumor. I am no exception. The moment I heard this rumor, my heart was full of uneasiness.
Looking back at the exchanges that have run away, such as Anyin, Hufu, and ZB, they were once platforms that investors trusted, but in the end, everyone lost all their money. These painful experiences made me realize that nothing is absolutely safe in the cryptocurrency market. Even large exchanges like Ouyi may face various risks. In this case, I began to re-examine my asset allocation strategy. I realized that storing too much assets in exchanges, especially those with potential risks, is undoubtedly exposing my wealth to huge risks. Once there is a problem with the exchange, such as being investigated by regulators, being attacked by hackers, or having poor internal management, investors' assets may face irreparable losses.
So, I made an important decision: to withdraw the assets of all small exchanges except Binance. I know that the safest asset management model is to independently control the private key. Only by holding the private key in your own hands can you truly control your assets and avoid asset losses due to problems in the exchange. After withdrawing the assets, I reconfigured my assets. I deposited 80% of my assets in my own wallet and chose a safe and reliable hardware wallet to store private keys. The hardware wallet stores the private key in an offline device, avoiding the risk of cyber attacks and allowing me to manage my assets more safely. I chose to put the other 20% of my assets in Binance. As one of the world's largest digital currency exchanges, Binance has strong technical strength, a complete security system and a good market reputation. Among many exchanges, Binance has relatively high security. I think putting some assets here can ensure a certain degree of security while facilitating some daily trading operations for me.
In addition to Binance and my own wallet, I will also temporarily place my assets on exchanges such as Oui or Bitget according to some special circumstances. For example, when there are new projects, I will temporarily transfer part of the funds to these exchanges to participate in the new activities to obtain potential benefits. Or when these exchanges launch some attractive activities, I will also participate appropriately according to my own judgment. But I always remain highly vigilant. Once the activity is over, I will transfer the assets back to my wallet or Binance as soon as possible to avoid the assets staying in these exchanges for too long and reduce risks. In this process, I also deeply realized the truth that there must be gains and losses, and there must be gains and losses. Although I missed some opportunities because of being too cautious, such as BGB.
In the cryptocurrency circle, in addition to the risks brought by exchanges, investments in mining machines and the primary market are also full of traps, which have caused me and my friends to suffer a lot of losses and deeply experienced the cruelty of this industry. Once upon a time, we were full of hope to invest in mining machines and chose to host mining machines with a well-known mining farm owner named Jiang in the industry. At that time, we were full of confidence in this decision, believing that with the reputation and experience of Boss Jiang, our mining machine investment could obtain stable returns. At that time, we bought the most advanced S19 mining machine at that time, which represented efficient computing power and rich profit expectations. Each mining machine is like a small wealth-making machine, carrying our yearning for wealth and freedom. However, the good times did not last long. The domestic crackdown on mining was like a sudden storm, which completely disrupted our plans. With the tightening of policies, the mining industry is facing unprecedented difficulties. The operating costs of the mines continue to rise, and the electricity prices have risen sharply, which has sharply compressed the profit margins of mining. At this difficult time, Boss Jiang gave us a chance to choose whether to refund the money for the unlisted mining machines or choose to wait for an uncertain future with the mines. In the midst of hesitation and entanglement, we finally chose to believe in the future and chose to stick to it. But reality dealt us a heavy blow. Today, the daily output of several S19 mining machines in our community is less than a few dollars. The once advanced S19 has become less cost-effective due to factors such as the Bitcoin halving. The mining machines that once roared are now more like a pile of expensive scrap metal, lying quietly in the mine, witnessing our failure and helplessness. I still keep Boss Jiang’s WeChat, and I once asked him with expectation what the future would be like. But a few years have made me understand that in this industry full of variables, nothing is certain, and the hopes that once existed have now turned into bubbles.
In addition to mining machines, we also suffered a lot from investing in the primary market. All the primary market projects we participated in, such as ALIENX, were pitfalls. Before participating, we heard all kinds of hype, such as huge financing and awesome founding teams, as if these projects were the through train to wealth and freedom. We were attracted by these beautiful visions and invested without hesitation, expecting to get rich returns after the project was successful. However, the reality was contrary to our expectations.
These painful experiences have made us realize that investment risks in the cryptocurrency industry are everywhere. Whether it is mining machines or primary market projects, there may be huge traps hidden. In this industry, nothing is absolutely reliable, and any seemingly good opportunity may hide fatal risks. Therefore, now our team will not participate in any other messy projects except for new projects with high certainty and stable returns.
After experiencing countless ups and downs, I deeply realized that the essence of investment is risk management, and returns are an accessory after effective risk management. If asset safety is not put first, then no matter how high the rate of return is, it will be nothing in the end.
No other industry is as full of traps and pitfalls as the cryptocurrency world, and one has to face policy storms at any time. Only such a harsh environment can slowly hone old leeks into mature investors.
Finally, I want to say to all the crypto enthusiasts who have lost their assets due to pitfalls, that everything will be a breeze in the next bull or bear market, because I lost 0.5BTC+5ETH in each of the three bull and bear markets that I have experienced. If you can survive the next bull market, you will eventually see the dawn of victory!
