What is a crypto exchange? Custody risk and the lessons of FTX

What does an exchange do?

A crypto exchange is an online marketplace, a bit like a stock market. Buyers and sellers place orders at their prices, and the exchange matches them. There are two kinds:

Custody risk: who really holds your coins?

When you deposit money or coins on a centralised exchange, they go into the company's wallets. Your "balance" in the app is a promise from the company. That is fine while the company is honest and solvent, but:

• FTX (2022): one of the world's largest exchanges collapsed within days. It emerged that customer money had been secretly used for other purposes, and the founder was later convicted of fraud in the United States.
• Mt. Gox (2014): the biggest Bitcoin exchange of its time shut down after a hack. Customers waited about a decade to get part of their money back.

More in crypto wallets and "not your keys, not your coins".

The Bangladesh context

• No crypto exchange is approved in Bangladesh.
• Under Bangladesh Bank's 2022 circular, banks and mobile financial services must not be used to buy, sell or transfer virtual assets.
• Bangladeshi accounts on foreign exchanges have faced restrictions at various times. Disputes with a foreign company are hard to resolve through local courts.
• Fake apps, fake "agents" and P2P fraud using exchange names are very common.

This page is not a guide to using any exchange. Its purpose is to explain how exchanges work and where the risks are. See the legal status.

Key points

• Coins on a centralised exchange are under the company's control.
• A big name is not a guarantee: FTX and Mt. Gox prove it.
• No crypto exchange is approved in Bangladesh.