White Label Exchanges Part II

In case you missed the beginning of this two-part delve into white label exchanges or don’t know what white label exchanges are, please take a look at my brief introduction to the concept by clicking here.

Otherwise, the main focus of this will be to explain the dark side of white label exchanges, or how they’ve slowly slipped from chaotic neutral to more a neutral evil.

When Democratizing Goes Wrong

While the introduction to white label software presents a democratization of industry, the sword is double-edged and the ramifications are wide. As in other industries, while new players can change the way business is done and lower the cost of production, the price paid is often in quality.

In the case of cryptocurrency exchanges, white labeling has allowed for the flourishing of no-names and never-do-goods to rip-off unsuspecting victims.

A Case Study In Bad White Labeling

The best example of a shoddy white label exchange I could find was what was once called WLOX, or White Label Open Source Cryptocurrency Exchange. This software, which is still available today, helped several cryptocurrency exchanges spin up, and was integrated with the infamous fake payment processor, Crypto Capital Corp.

WLOX “Provided by Crypto Capital Corp”

WLOX in and of itself isn’t the biggest problem, but one must dig a little further to understand why Crypto Capital Corp would want to offer free, open source cryptocurrency exchange software. And the answer becomes glaringly obvious when you scroll down:

“easily integrated with Crypto Capital Corp… outsource verification of identity”

The goal here is, seemingly, to have Crypto Capital Corp spin up its own exchanges, flush cash into them, have others use the WLOX software and integrate with CCC. It now becomes simple to launder capital by washing bad money (CCC money that could include counterfeit dollar bills) with neutral money (customers trying to legitimately use a white label exchange they discover). “If you don’t pay for the product, you are the product.”

The Main Concern of Developers

For most of the developers I spoke with, they weren’t concerned with the tactics of white label exchanges like WLOX (in fact, multiple developers didn’t realize there was open source white label cryptocurrency exchange software). The main concern they had in regard to white labeling of cryptocurrency exchange software was that, by now, there’s little reason to be requesting it all.

The three best reasons they could think of off the top of their heads were: (1) exit scam, (2) turn a fast buck and abandon the project, or (3) don’t have the knowledge or wherewithal to build a cryptocurrency exchange, and therefore shouldn’t be involved anyhow.

Granted, there was a time where white labeling exchange software may have made sense. In the ’17-’18 bull market, as volumes dramatically increased, there was not only demand for more exchanges (as many weren’t accepting new customers), but also a host of individuals who believed they could create a **better** cryptocurrency exchange. Many of these people wanted to have the foundations of a cryptocurrency exchange already up and running so they could integrate the changes they desired quickly and efficiently. How many of these white labeled exchanges succeeded in the long-run is lost to the sands of time.

Nonetheless, none of the developers could think of a legitimate reason for anyone to request white label cryptocurrency exchange software these days. “If I want to borrow code from another source, I ask. Otherwise, I build it myself.” On the other hand, they also expressed the general view that white labeling cryptocurrency exchanges was on its way out. “I don’t get many requests to build anything like that,” one said, “last request I remember was from 2017.”

Is It Easy to Spot a White Label Exchange?

The answer is yes and no.

For programmers and developers it’s likely very easy to parse through exchanges and see which ones are white labeled. But for people like myself — those who don’t code for a living and certainly aren’t exposed to 100 different cryptocurrency exchanges — it may be far more difficult to notice the identifiers of a white labeled exchange.

This is when it’s important to have friends who know a bit about the industry and about programming who could easily inform you about the risks involved in working with a particular exchange. There are already larger centralized exchanges with devoted teams to UI/UX/new features (and ones that haven’t been hacked), so chasing smaller liquidity at unknown white label exchanges seems like a big mistake for any retail trader.

Is Writing Code the Last Bastion of Free Speech?

the first amendment

One of the very strange takeaways from this long venture into the world of seedy exchange operators and white label software creators was that, as a writer, it appears programmers have far more freedom of speech than writers or orators in America.

Of all the people I spoke to for this article, not one said that developers and programmers were to blame for the hi-jinx of the space. If bad actors will pay cash for code, it isn’t the responsibility of the programmers to determine how that code will be used. And for the most part, they’re correct.

Inherently, when exchanges collapse or exit-scam, regardless of if they were developed using white label exchange software or an in-house team, the people blamed are the executives and founders. Coders, developers, and programmers are hardly, if ever, held responsible for exit scams or hacks.

Should they be? Well, the developers I spoke to — and let’s make sure it’s known they’re obviously going to be biased — gave a hard “No.” The argument goes along the lines of: gun manufacturers aren’t blamed for individual deaths due to their creations, as the guns were manufactured for hunting and protective purposes. Similarly, no matter what code could be used for (unless developed for virus purposes), the programmer isn’t to be held responsible for how that code is utilized. As a writer, I too am biased. I believe in the freedom of speech to a fault. I sit firmly on the side of the programmers.

But I also understand the concern. There have been numerous hacks of nearly every cryptocurrency exchange in existence (save a handful), with open source white label exchanges being particularly vulnerable. Cryptocurrencies themselves are known to be launched with all sorts of bugs (even Bitcoin had a bug which allowed for the infinite creation of coins). Consumer beware. Unfortunately, it’s difficult to tow this line when so many are vulnerable to significant losses — ask the tobacco industry.

I’m hopeful programmers retain their freedom of speech, and to be quite honest, ending this two-part series mostly discussing freedom of speech isn’t what I expected. White labeling of software is, ultimately, an exercise in neutrality. It’s how people tend to use white labeled software that ends up hurting others.

Stay skeptical, friends.

Fraud. Fraud everywhere.