How to protect your funds from blocking on the exchange?

After the incident with the suspension of the activities of the Bitzlato exchange platform and the arrest of its co-founder Anatoly Legkodymov in the United States, a group of Russian-speaking users of the largest cryptocurrency exchange Binance faced account blocking. Many of them did not hide the fact that they used Bitzlato services for transfers between Binance wallets and the service itself.

The victims created a group chat in Telegram, where they shared comments about the blocking of accounts and the inability to withdraw funds from the exchange. Binance responded to the incident. In the comments for RBC-Crypto a representative of the exchange confirmed that the blockages did take place and were related to cryptocurrency transfers from wallets associated with Bitzlato, “as part of the investigation.” According to a representative of the exchange, “more than 90% of accounts” have already been unlocked, and all the funds of its clients are safe.

Who is blocked

In this case, suspicions were caused by the connection of the wallet from which the user makes a transfer to the exchange, or to which he withdraws funds, with any illegal participant, including those who fell under sanctions (such as Bitzlato), comments Stanislav, Director of Analytics at CoinKit LLC Christmas.

“Even if you yourself did not work with Bitzlato or anyone like that, but the one who sent you or received funds from you worked, this is a sufficient reason for blocking. At the same time, different participants may have different degrees of risk,” the expert explains.

According to Rozhdestvensky, given the high turnover between Bitzlato and the illegal Hydra marketplace (according to accusations from the US Department of Justice), the level of risk for transfers associated with both platforms may now be the highest.

Most centralized exchanges use third-party tools to assess transaction risk, says Nikita Zuborev, senior analyst at As a rule, the data is taken by the Crystal Blockchain company, which accumulates information about crimes and sanctions against certain individuals and wallets associated with them. Accordingly, funds that have direct or indirect links with sources that violate the laws may become suspicious for the exchange.

For a long time, such a mechanism existed almost imperceptibly for ordinary users, but over time it has undergone a transformation. Today, funds are blocked more often for sanctions reasons, there are an order of magnitude more blockages themselves, and they have become “louder” due to their specifics.

Today, transactions can be blocked that contain tokens that have ever been on cold wallets of services that seem suspicious to US or EU authorities. In fact, the problem is quite serious, since the user himself could never have any connection with these sources or be unaware of the dubious status of his counterparty at the time of the transaction, the analyst argues.

“No one is safe”

The number of blocking user accounts on exchanges “claiming to be conditionally legal” has indeed increased significantly, notes crypto expert and author of the GFiSchannel Telegram channel Taisiya Romanova. The reasons for blocking in fact can be any violation of the rules for using the site. The rules are usually detailed in the public domain. For obvious reasons, exchanges do not disclose a specific methodology, otherwise, it would make it easier for those who are trying to bypass the system intentionally.

At the same time, a fairly large number of users of crypto exchanges are of the opinion that cryptocurrencies should not obey the rules of the traditional financial system, and therefore they deliberately ignore a number of requirements of the sites. However, regardless of the initial principles and philosophy, business will be forced to obey the environment in which it is organized. And users need to either accept this fact or use cryptocurrencies outside of the traditional financial system.

“As a result, either due to a denial of reality, or due to a lack of information, even those users who have not committed any malicious violations are being blocked,” Romanova explains.

The risks of facing an account blocking on any exchange today are really higher than ever, Zuborev agrees. Unfortunately, many centralized services often block any suspicious transactions “indiscriminately”. Some of them just need to get your identity data as part of the “Know Your Customer” (KYC) procedure to unlock, and some may request information about the origin of funds as part of the fight against money laundering (AML procedure).

“But there are those for whom all this will not be enough, and they will simply shrug their shoulders, referring to the regulators. The latter, fortunately, are in the minority,” Zuborev says, adding that for some services, a transaction risk level of up to 40% remains acceptable.

In any case, no one is safe from blocking absolutely legal funds if at any time in the history of the existence of these tokens they were held by criminals or on exchanges that the US government considers to be accomplices of criminals, the analyst adds. Recently, the number of such sources has begun to increase rapidly. As in the case of the same Bitzlato, ordinary users of the service, who had ever kept funds on wallets in the service, suffered in many respects from blocking.

The level of risk of blocking an account depends on the severity of the Know Your Transaction (KYT) rules applied by a particular exchange, Rozhdestvensky notes. The exchange can build a strict policy regarding deposit operations, including based on the requirements of regulators. For example, it can block transactions if at least 20% of the funds in your counterparty’s wallet have previously passed through Bitzlato. An account can be blocked for a certain period of time depending on the compliance policy of the recipient exchange and on the capabilities of the KYT service that this exchange uses.

Prospects in case of blocking may be different. In the best case, the exchange support service may require the user to provide documents (bank statements or screenshots) confirming the legal origin of the funds, after which the account can be unlocked. If you do not get in touch with support, or your explanations and documents do not satisfy the employees of the exchange, your account will remain blocked, and the funds on it will be lost to you, a CoinKit representative explains.

How not to get blocked

Before replenishing an exchange wallet, it is worth checking the purity of your funds through any of the many AML services, Zuborev advises. This will eliminate possible questions from the exchange and avoid surprises in the process of exchanging funds through centralized platforms.

“If your transaction, for reasons beyond your control, turned out to be risky, there are several options for “cleaning” it. The surest, but time-consuming way is to contact the support of the selected exchange in advance and clarify what actions you will need to credit these funds in order to prepare the necessary information in advance or choose another exchange, ”explains the analyst.

Another option, according to Zuborev, is to use services that allow you to make exchange transactions, regardless of the level of risk. These are either exchange offices with loyal user conditions, of which there are not so many left, or completely decentralized networks like Bisq. The third way is to exchange funds through decentralized exchanges. Although advanced tracking mechanisms are able to track such “swaps” within the same blockchain, the expert clarifies.

To minimize the risk of blocking funds, you should at least familiarize yourself with the rules of the exchange and keep them in mind, advises Taisiya Romanova. It is also useful to regularly check cryptocurrencies for risks and save the results of verification and correspondence with counterparties when purchasing cryptocurrencies through P2P services. This can greatly help if questions arise in case of marking the crypt “backdating”.

In most cases, with polite communication and providing the necessary evidence, the account will subsequently be unblocked, although in some cases the exchange may stop providing services and ask for the withdrawal of funds from the site. In isolated cases, blocked funds are not returned. But such cases are usually associated with requests from law enforcement agencies.

For those who, for some reason, do not want to put up with tougher conditions, decentralized platforms, token swap services and mixers are still available. However, it should be remembered here that at the exit such coins may receive an increased level of risk in the marking system of a “dirty” cryptocurrency, which can potentially cause problems when trying to enter “the very conditionally legal field” with it.

“Unfortunately, the era of freedom and permissiveness in crypto is gradually coming to an end, which has both pluses and undoubted minuses,” says Romanova.

You should always check the counterparty before making a deal or transferring funds from wallet to wallet, advises Rozhdestvensky.

“Today, AML providers offer a wide range of services at a low price, especially considering that by neglecting such precautions, you risk losing your crypto assets,” the expert argues.

In his opinion, it is not worth keeping large amounts on exchange accounts, because even a small careless or malicious (for the purpose of discrediting) transfer can cause the blocking of all available funds.

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