In today’s Exponential Investor

  • Another look under the hood
  • What the hell is going on?
  • The Four Points

This week, I’ve given you a bit of a glimpse “under the hood” of my advanced advisory, Crypto Profits Extreme.

It’s a publication that I don’t recommend new people to the crypto world get involved in. It requires a technical competency that means if you don’t know what you’re doing, you can end up in hot water simply through user error.

That’s why we introduced entry level, introductory crypto information into my Frontier Tech Investor publication. That way you can build the confidence and the competency to eventually take that next step into a more advanced level of crypto investing.

But I do want to give you another peek at the kind of work we publish at Crypto Profits Extreme. Call it an eye-opener as to the kinds of things we consider when providing advice on the latest crypto that might be involved in decentralised finance (DeFi), non-fungible tokens (NFTs), or other hot areas of the crypto world.

Read on to see a glimpse at part of one of my more recent updates around weird happenings with Ethereum accounts and perhaps the most crucial lesson to know when you get into crypto.

Weird moves

I was having a look at some of my recent Ethereum wallet transactions. I was helping a reader with a few things regarding interacting with MetaMask and decentralised exchanges like Uniswap.

Anyway, as I was doing this, I noticed that in one of my ETH wallets there had been some recent transactions take place that looked suspicious.

The weird thing was, I haven’t used that wallet for ages. And I absolutely didn’t transact with it when those transactions took place, because I didn’t transact with any of my ETH wallets on that day.

In short, there had been some activity with one of my ETH wallets… and it wasn’t me!

Cue the panic, terrifying thought of being hacked, corrupted, etc.

What made it even more a little, “trouser filling”, was the fact all my hardware devices are in safety deposit boxes.

To be honest, the panic was kind of my own fault.

I’ve lost count of the number of ETH wallets I’ve interacted with over the last few years. It’s a lot. I never like holding ETH in any one central spot. Same with any ERC-20 or ERC-721 tokens, they’re well spread across the different hardware devices.

Anyway, this wallet address I knew was mine. But I couldn’t figure out which device it belonged to. Then I finally figured it out. It was the ETH deposit address for my Binance account.

Phew! Hardware wallets were all safe and secure and no action on them… as it should be.

But… I hadn’t logged into Binance in about a week. I certainly hadn’t made the transactions that it was showing. What the hell was going on?

After a bit of blockchain forensic activity, I figured it out.

What had actually taken place was that about 25 days ago I had sent some crypto into my Binance account. I had made the trade on that very day.

Now, I would have thought that the process works like this,

  1. Deposit ETH into Binance
  2. Make the trade with another crypto using the ETH trading pair
  3. Job done.

But that’s not what actually happens.

Instead the deposit goes into Binance. Then you make a trade. But it doesn’t use the deposit funds you’ve just sent in. Quite contrary.

When the trade in the ETH pair is made, it’s like you’re trading on a form of short-term credit, which is taken from your “balance”, but the actual ETH used to trade still exists and sits on the wallet.

Then at some undetermined point in the future (I’ve now seen it range from 25 days later to six days later), the actual deposit is moved into one of Binance’s main holding wallets (which currently holds around $3.5 billion worth of different tokens – you can see it here.)

Four important points

It was all very weird.

I get that at scale, centralised exchanges like this may need to operate a series of balances to maintain liquidity, which I would have thought might happen daily or maybe weekly at worst.

But to see a deposit go in, trade that deposit, which I thought was the actual deposit I had made, and then to see that actual deposit moved independently 25 days later from the wallet… it smells funny to me.

What this does, however, is remind me, to remind you, some very important points about all centralised exchanges and in this particular case, Binance.

  1. You never really know how they operate and what they’re doing behind the scenes.
  2. They can make transactions from your wallets in their platform, whenever the hell they like – and as I’ve just seen, will do it.
  3. You never really “own” your crypto when it’s on an exchange. You think you’re transacting with your own deposits, but that’s clearly not the case, it’s a weird credit and debit system that seems pretty ad-hoc and inconsistent.
  4. Not your keys, not your crypto. So never store significant amounts on any exchanges.

Binance does serve a purpose, a purpose that is diminishing with the growth in decentralised exchanges, and bridges between other blockchains.

My take is that if you’ve been lazy and have real “hurt money” (as in if you lost it, it would really hurt) remember to get it off exchanges. If you need to use it to trade, which sometimes you will, then do it, and get it the hell out of there as fast as you can to self-custodied wallets.

That last point perhaps most important. As we say in the crypto world, “not your keys, not your crypto.”


Sam Volkering
Editor, Exponential Investor