All your bitcoin are belong to us – 16 year old bitcoin traders – School of hard knocks
1btcxe ripped me off is the title of a reddit post at r/bitcoin. It tells the story of a 16 year old that had been trading on the bitcoin exchange 1btcxe for over six months. Then suddenly his account was frozen and he could not withdraw his bitcoin. They asked him to ID himself and go through other KYC (know your customer) procedures scanning documents of himself and his father to no avail. He lost over 21 bitcoin. According to the exchange´s terms of service They do not allow users under the age of 18. Of course it would be easy enough for the exchange to send him his bitcoins but they are a company that was registered in Panama so they are not under a lot of presure from a 16 year old bitcoin trader to do so.
What could have mark55david done to prevent losing his bitcoin?
-Do not treat bitcoin exchanges as banks
We do not know if this was all of mark55david´s bitcoin but lets asume that it was. He was using the exchange as a bank to store his bitcoin. If you are not holding your bitcoin private keys then you do not have your bitcoin. You have an IOU from an exchange or website that they owe you X ammount of bitcoin on your account. Unless you are using these funds to day trade or day gamble then there is no real reason to hold them on an exchange or other website. Bitcoin is quick and cheap to move around. Withdraw when you are done doing what you wanted to do. Learn about bitcoin wallets and cold storage.
-Use leverage to trade and understanding base risk
A lot of people claim leveraged trading is evil or gambling. They just do not understand how to use it as a tool. Lets say we are mark55david and own 20 bitcoin. We want to day or swing trade but also want to reduce our base risk. The risk that the exchange will go out of business or defraud us in any way. You could go five times long or short bitcoin at 1broker using a bitcoin cfd. Using the four bitcoin as collateral I can now trade as if I had 20. Before fees if the price moves 1$ up and I am long I have now made 20$ worth of bitcoin same goes for if I am short and it goes down 1$. I can also use this to hedge the bitcoin that I am storing in cold storage. Without leverage I would not be able to do this. I am reducing my base risk significantly. You could take it a step further and trade on more that one exchange. Bitfinex offers three times leverage and bitmex offers up to one hundered times. By spliting up your trading funds you have again reduced the base risk since now ALL of the exchanges would have to defraud you.
-Get someone over 18 to make an account for you
A simple solution that might have helped would have been for him to use the name and data of someone he trusts to make an account. Im sure people under 18 do this all the time to get access to things that they are not allowed to. Lets look at it from the exchanges side.
“Oh look what I found, a 16 year old with 21 bitcoin that violated our TOS. Thanks for giving us the bitcoin.”
-Do research on bitcoin exchanges
There are many more exchanges besides btcxe, which is more of an obscure one. Where are the volume of trades made and why is that? Read, ask questions and do not send all of your bitcoin to ONE exchange.
Now that bitcoin is going up again expect to hear more of these stories. Keep your accounts protected with 2FA. Do not trust some random site because it looks nice. Do not forget about base risk