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So, you’ve deposited some cryptocurrency onto an exchange. You expect that these funds will be held in your name as a liability, with safeguards in place to make sure that you can withdraw them when you wish.

However, this is not necessarily the case.

Sitting down with Magazine, Simon Dixon, CEO of global online investment platform BnkToTheFuture, warns that the murky lines between regulations in the crypto industry mean that customers must be extremely cautious about where they stash their crypto.

“[The cryptocurrency industry] was created by businesses that want to build financial institutions, and robust financial history has shown that if you leave them to their own devices, they won’t respect client money.”

Take FTX for example. Dixon notes that former FTX CEO Sam Bankman-Fried allegedly treated customer funds as if they were his own, tipping billions into Alameda Research.

“FTX would use those assets for their sister company hedge fund and then find themselves in a position where the hedge fund had lost all of their money,” Dixon says, emphasizing that this led to there being no assets for clients to withdraw.

Dixon has invested more than $1 billion in “over 100” different crypto companies, including Kraken and Ripple Labs. One of the projects BnkToTheFuture raised money for turned out to be one of the biggest crypto disasters in recent times: bankrupt crypto lending platform Celsius.

Before its collapse in July 2022, Celsius was allegedly using money from new customers to pay off attractive yields promised to other existing customers. He says Celsius caught investors and customers off guard by treating their client money “as if it were their own.”

Crypto opponents like United States Representative Brad Sherman characterized this behavior as endemic to the cryptocurrency ecosystem:

So, what are all the other crypto exchanges actually doing with your money? Even if they’re not outright frauds, can you trust exchanges to safeguard your funds?

There are hundreds of crypto exchanges across the globe, spanning from more trustworthy to outright fraudulent. 

Crypto market tracker CoinMarketCap tracks 227 of these exchanges, which among them have an approximate 24-hour trading volume in July of around $181 billion (if you ignore accusations of rampant wash trading).

Adrian Przelozny, CEO of Australian crypto exchange Independent Reserve, tells Magazine that consumers should “always be mindful” of the distinction between the business model of an exchange versus a broker.

An exchange usually keeps its customers’ assets directly in its own storage. This means they can’t really use those assets to make extra profit for themselves. Przelozny explains that Independent Reserve has enough liquidity on the platform so that when you place an order on the exchange “you are trading against another customer.”

On the flip side, brokers may entail counterparty risks to other exchanges by holding customers’ crypto assets on the exchange to earn some extra money.

This helps the broker rake in more funds, but it also puts the customer at risk. Przelozny emphasizes that brokers cannot earn a return using clients’ assets without taking a risk.

He warns that with a brokerage-type business model, when you place an order, that platform has to essentially run off in the background to acquire the asset you want.

“The platform has to get the liquidity from another exchange, so they place the order on behalf of the customer and then that customer is actually exposed to counterparty risk.”

A counterparty risk is when there is a chance that another party involved in a contract might not hold up their end of the deal. It gets riskier when a broker keeps customer funds or assets on another exchange because if that exchange goes bust, the customer assets could go down the drain as well.

It’s a word that would probably send shivers down the spines of the executives at Australian-based crypto broker Digital Surge, which found itself in hot water right after FTX went down.

The Australia-based broker went into administration after it had transferred $23.4 million worth of its assets to FTX, just two weeks before the whole collapse happened in November 2022.

Digital Surge managed to pull off a lucky escape with a bailout plan; however, it did involve directors Daniel Rutter and Josh Lehman personally chucking $1 million into the mix.

Crypto lender BlockFi and crypto exchange Genesis weren’t so lucky: Both ended up filing for Chapter 11 bankruptcy due to being exposed to the FTX mess.

So, while an exchange has fewer avenues to generate profits compared to a broker, it prioritizes the safety of funds. 

Dixon explains that if a crypto broker is storing client assets on another exchange, such as Binance, for example, the broker should be transparent with the client that “if anything were to go wrong” with Binance, the assets would be hard to retrieve. 

In the case of the crypto exchange side of BnkToTheFuture, Dixon makes it clear that as a “registered virtual asset service provider,” it has to have disaster recovery, and all clients’ assets need to be distributable at all times, even if the parent company “goes down.”

“We actually can’t use [client assets] in any way shape or form as per our [securities] registration,” Dixon says.

He explains that a securities registration holds an exchange to a higher standard, as it sets policies in place that need to be tested against them regularly.

A securities registration basically requires an exchange to hold those assets and maintain comprehensive records verifying the customer as the real owner of those assets, as well as the exchange being subject to regulatory inspections.

Coinbase’s and Binance’s recent legal troubles with the United States Securities and Exchange Commission stem from allegations of operating as unlicensed securities exchanges, meaning both weren’t held to the recordkeeping and safeguard requirements that a license would mandate.

What happens after I deposit funds into a crypto exchange?

So, what actually happens when you deposit $50 or $50,000 into an exchange and buy some crypto?

In the exchange model, where users trade directly with one another, it’s like a one-on-one deal. When your digital asset order is executed, your money goes straight to the person you’re buying from. The assets stay within the exchange throughout the whole transaction.

When it comes to a brokerage-type model, you’re buying the asset from the broker directly.

So, the money goes into the broker’s trust account first. Then, the broker takes that money and uses it to acquire the assets you want. Essentially, they’re playing matchmaker between your money and assets. The asset is then generally held on another exchange.



Regardless of whether your assets are hanging out on the exchange where you bought them, or with a counterparty linked to the broker you used, they will call home either a hot wallet or a cold wallet.

Hugh Brooks, director of security operations at crypto audit firm CertiK, explains to Magazine that most major exchanges “store customer assets in a combination of hot and cold wallets.”

A hot wallet is a cryptocurrency wallet that is connected to the internet and allows for quick transactions. On the other hand, a cold wallet is stored offline, is secure and keeps your crypto safe from hackers.

While having 100% of customer assets in a cold wallet would be ideal for safety reasons, it is not feasible for liquidity reasons. Brooks says: 

“While hot wallets provide convenience in terms of easy and fast transactions, they are also more susceptible to potential security threats, such as hacking due to their internet connection. Hence, exchanges usually keep only a fraction of their total assets in hot wallets to facilitate daily trading volume.”

Przelozny says that, in the case of Independent Reserve, “98% is held offline in a cold storage vault” managed by the exchange, and the rest is in a “hot wallet in the exchange.”

James Elia, general manager of exchange CoinJar, tells Magazine that his exchange similarly keeps the “vast majority” of assets in cold storage “or private multisig wallets” and maintains full currency reserves at all times.

He says that CoinJar uses a mix of “multisig cold and hot wallets through BitGo and Fireblocks to store customer funds.”

Crypto.com is unusual in that it offers customers both a custodial and noncustodial option.

“The Crypto.com DeFi Wallet is a noncustodial option,” a spokesman says in comments to Magazine. This means its customers have full control of their private keys. Meanwhile, the Crypto.com App is a digital currency brokerage “that acts as a custodian” and stores cryptocurrencies for customers. The spokesperson says that its crypto assets are “safely held in institutional grade reserve accounts and are fully backed 1:1.”

Further solutions

However, relying solely on accounts that claim to be secure is no longer sufficient in the unpredictable world of crypto.

In line with many other major crypto exchanges, such as Binance, Gemini, Coinbase, Bittrex, Independent Reserve, CoinJar and Kraken, Crypto.com has also adopted a self-custody infrastructure platform called Fireblocks.

Fireblocks focuses on ensuring the exchange securely stores and manages customers’ digital assets in an advanced and secure way. The firm utilizes multi-party technology computation (MPC technology), which is similar to a multisig wallet and is never held or created in a single place. 

While the infrastructure custody platform doesn’t hold any assets itself, which remain on the exchange, it can incorporate features such as multisignature authentication and encryption into the exchange. This is done to minimize the risk of fraud, misuse of funds and malicious attacks.

It also makes it a lot harder for a sneaky employee to authorize a dodgy transaction or, even worse, drain customer assets out of the exchange. 

Shane Verner, director of sales for Australia and New Zealand for Fireblocks, tells Magazine that initially, Fireblocks will shard the exchange’s crypto wallet private keys into three parts.

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A wallet’s private key is similar to a password or a PIN and is a combination of letters and numbers serving as the sole requirement to sign transactions and manage digital assets.

On the other hand, a wallet’s public key is the address you give for people to send you crypto, like a bank BSB and account number.

One shard of the private key is given to the exchange, while Fireblocks safeguards the other two shards in encrypted hardware in geographically discrete data centers. Essentially, it involves splitting the secret code into three pieces and hiding each piece in a different spot.

Every large transaction on a crypto exchange integrated then requires the three shards to come together to approve the transaction.

The three shards only unite when the exchange fulfills the obligations set out by Fireblocks for the transaction approval process. Verner says this is the “most critical” part of the integration.

Dixon says this manages risk in a “much better way,” as Fireblocks allows exchanges to “write rules into transactions.”

An example of these rules is the exchange setting a required number of employees to sign off on transactions. This can be modified as the customer list grows.

For example, let’s say the exchange used to allow three employees to sign off on transactions of $10,000 and above but then decide that isn’t enough, and they increase the requirement to five employees. The number of employees required to approve a particular transaction depends on the size of the transaction.

Within exchanges, there are then employees assigned with the task of manually approving large transactions. Verner explains that the number of employees in the various “quorums” increases in proportion to the size of the transaction.

“They all register their face ID on their mobile phone. They all put in their authorization code as well. So, it’s two-factor, and everything gets approved,” Verner says.

“Then that goes into the Fireblocks infrastructure, where our two shards have been told that they can come together and authorize the transaction,” he further explains.

While pointing out that every exchange is different, he says that small transactions up to a certain amount of money can automatically go through and do not require human approval.

“It’s entirely at the discretion of the exchange in question, but it’s critical,” says Verner, adding, “They might say every transaction between $100 and $1,000 is automatic.”

The limits imposed by exchanges vary depending on their specific demographic. Exchanges catered to retail investors are going to have lower limits because it wouldn’t expect to see many $10,000+ transfers.

However, if you start sending large amounts, you may find yourself attracting more attention than you anticipated.

The larger the amount, the greater the number of approvals required. For example, for $1 million worth of Bitcoin, you may need a quorum of eight to 10 authorized approvers within the business to enable that transaction.

“If one says no, they all say no,” Verner says.

“Effectively, really big amounts are always going to require human intervention because you don’t want somebody taking $1 million off their exchange without a bunch of approvers within your organization approving.”

Fox in the henhouse

Verner warns that none of the above security matters mean anything if a crook runs the exchange.

If the head of an exchange is “prepared to corrupt the governance layer,” then all the security measures put in place become essentially useless.

He runs through a simple example of a dubious CEO controlling all the authorizers in the quorum, and then doing as they please. In such a scenario, the CEO can act freely to his own desires.

 
In the case of FTX, Bankman-Fried allegedly demanded that his co-founder Gary Wang create a hidden way for his trading firm Alameda to borrow $65 billion of client funds from the exchange without anyone knowing. 

In November last year, Bankman-Fried was called before Congress to testify about the exchange’s collapse. (C-SPAN)

Wang allegedly sneaked in a single number into millions of lines of code for the exchange. This sly move created a line of credit from FTX to Alameda without customers ever giving their consent to such an arrangement.

To avoid foul play from someone on the inside, many exchanges are putting more security measures in place as the industry matures.

Elia says that all CoinJar employees must pass a criminal background check before joining the company and are required to take part in ongoing security and Anti-Money Laundering training.

He says that “multilevel data encryption, ongoing security audits and institutional-grade organization security to protect customer accounts” are also employed. CoinJar also uses “advanced machine learning” to recognize suspicious logins, account takeovers and financial fraud.

How do you conduct due diligence on an exchange?

The phrase “do your own research” has become somewhat of a rallying cry in the crypto space when it comes to investment, and many believe the same should apply for choosing your exchange. 

Przelozny emphasizes that consumers should always research any exchange before depositing funds and not “expect others” to do due diligence for them. 

The United States Commodity Futures Trading Commission advises on its website that you should look to see if the crypto exchange actually has a physical address. 

Most countries now require cryptocurrency exchanges to obtain licenses, with regulators providing public info on digital currency exchange license requirements and providing databases of registered entities. 

Users can also check social media and independent review websites (not the exchange itself) to see what customers are saying.

Przelozny says that customers should scrutinize the terms and conditions of the exchange meticulously, paying close attention to anything that suggests the exchange will earn a yield on clients’ assets, as that means the exchange has “every right” to do that.

He adds that investors should not flock to an exchange just because their “favorite athlete” is promoting it. The $1-billion lawsuit taken against influencers who promoted FTX and failed to disclose compensation should serve as a cautionary tale.

Kim Kardashian settled a lawsuit for $1.26 million for promoting an unregistered security on Instagram. (Going Concern)

Dixon similarly advises investors not to get sucked in by the advertising or marketing schemes and instead focus on the fundamentals.

“I think affiliate marketing and financial products should never be combined,” Dixon says, noting he does not sign up influencers or celebrities to promote BnkToTheFuture or online shills. “We won’t actively incentivize people to talk about our business because they’ll get it wrong, and they’ll get us in trouble.”

That said, Dixon finds that authentic word of mouth between friends and family remains an incredibly powerful means of establishing trust in exchanges. 

Dixon explains that while there may be uncertainty about how exchanges handle consumer funds, the situation is not fundamentally different from traditional banks: “I think if the banks were doing their jobs, when you deposit the money with the bank, [it would be disclosed that] you’re not the legal owner of the money.”

The banks “can leverage it up and put it at risk,” Dixon emphasizes and warns that there is little disclosure from the banks saying they “may need to go to the FDIC to get a bailout” if the loans go bad.

“I think those are probably buried in the terms and conditions, but I don’t think they’ve given a good user experience to let consumers know that, actually, there’s quite a lot of risk in your bank account.”

Ciaran Lyons

Ciaran Lyons is an Australian crypto journalist. He’s also a standup comedian and has been a radio and TV presenter on Triple J, SBS and The Project.

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SEC postpones ruling on Fidelity Ether ETF options

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SEC postpones ruling on Fidelity Ether ETF options

SEC postpones ruling on Fidelity Ether ETF options

The US Securities and Exchange Commission has postponed ruling on whether or not to permit Cboe BZX Exchange to list options tied to asset manager Fidelity’s Ether (ETH) exchange-traded fund (ETFs). 

The agency has given itself until May 14 to approve or disapprove of Cboe BZX’s request to list options tied to Fidelity Ethereum Fund (FETH), according to a March 12 SEC filing. 

Cboe BZX initially requested to list options on Fidelity’s Ether ETFs in January, the filing said. 

Listing options on Ether funds is an important step in attracting institutional capital to the cryptocurrency.

SEC postpones ruling on Fidelity Ether ETF options

Ether ETFs by net assets. Source: VettaFi

Related: SEC acknowledges slew of crypto ETF filings as reviews, approvals accelerate

Flurry of filings

In February, the SEC acknowledged more than a dozen exchange filings related to cryptocurrency ETFs, according to records.

The SEC’s acknowledgments highlight how the agency has softened its stance on crypto since US President Donald Trump started his second term on Jan. 20.

On March 11, Cboe BZX asked regulators for permission to incorporate staking into Fidelity’s Ether ETF. Staking is not yet permitted by any publicly traded US Ether fund. 

Staking Ether enhances returns and involves posting ETH as collateral with a validator in exchange for rewards.

Fidelity’s FETH is among the more popular Ether ETFs, with around $780 million in net assets as of March 12, according to data from VettaFi. 

In February, the SEC delayed deciding on similar rule changes proposed by Nasdaq ISE and Cboe’s affiliate, Cboe Exchange — both US-based securities exchanges. 

The agency intends to decide by April if Nasdaq can list options tied to BlackRock’s iShares Ethereum Trust (ETHA). 

BlackRock’s fund is the largest ETH ETF, with more than $3.7 billion in net assets, VettaFi’s data shows.

It will rule on Cboe Exchange’s bid to list options on Fidelity’s Ether fund in May. 

Spot Ether ETFs were listed in July 2024 and have proceeded to attract nearly $7 billion in net assets, according to VettaFi’s data. 

Options are contracts granting the right to buy or sell — “call” or “put,” in trader parlance — an underlying asset at a certain price.

Magazine: MegaETH launch could save Ethereum… but at what cost?

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SEC’s enforcement case against Ripple may be wrapping up

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SEC’s enforcement case against Ripple may be wrapping up

SEC’s enforcement case against Ripple may be wrapping up

The US Securities and Exchange Commission may be preparing to end its enforcement action against Ripple Labs after more than four years.

According to a March 12 X post from Fox Business reporter Eleanor Terrett, the SEC’s case against Ripple was “in the process of wrapping up” after the parties filed an appeal and cross-appeal, respectively, over a $125-million court judgment in August 2024. The civil case against the blockchain firm filed in December 2020 alleged Ripple and certain executives used XRP (XRP) as an unregistered security to raise funds.

Ripple chief legal officer Stuart Alderoty told Cointelegraph on March 11 that the SEC civil case was “far more advanced” than many of the others the regulator had dropped following the inauguration of US President Donald Trump and the departure of Chair Gary Gensler. Since January, the SEC has announced it will not pursue enforcement cases against Coinbase, Consensys, Kraken and others.

“We do have a judgment, we are on appeal — that presents some additional complexity,” said Alderoty in regard to the case potentially being dropped. “But we remain optimistic that we’ll get to a resolution with the SEC, and if we don’t, we’ll proceed with the appeal.” 

According to the Ripple CLO, there were several possible outcomes to ending the SEC case if both parties were in agreement that it should wind down. If Ripple and the SEC agreed independently to drop their appeal and cross-appeal in the Second Circuit, then the $125-million judgment in the lower court would stand. If there were a dispute over the monetary judgment, then the blockchain firm and the commission would have to go “hand-in-hand” to request any modification from a judge. 

Related: Why is the Ripple SEC case still ongoing amid a sea of resolutions?

The SEC v. Ripple case involved one of the first significant court rulings favoring the crypto industry when Judge Analisa Torres said the XRP token was not a security under the regulator’s purview — but only in regard to programmatic sales on exchanges. At the time of publication, no filing suggesting the SEC intended to drop the case appeared on the docket for the US District Court for the Southern District of New York or the US Court of Appeals for the Second Circuit. 

Change of tone at SEC under Trump

Though the SEC filed the Ripple case under Trump’s former chair, Jay Clayton, the commission stepped up the number of enforcement actions following Gensler’s confirmation in 2021.

Ripple CEO Brad Garlinghouse said in an interview aired in December 2024 that the firm may not have gotten as involved in US politics if the commission had been led by someone other than Gensler. Under Garlinghouse, Ripple contributed $45 million to the political action committee Fairshake for the previous election cycle and donated another $25 million in November 2024. 

Ripple pledged $5 million in XRP to Trump’s inauguration fund following his election victory, and both Garlinghouse and Alderoty attended Washington, DC events on Jan. 20 as official guests. The chief legal officer personally donated more than $300,000 to fundraising and political action committees supporting the US president.

The correlation between political contributions to Trump and Republicans and the SEC dropping enforcement actions has many critics pointing to potential conflicts of interest in the administration. Coinbase, another major Fairshake backer that donated $1 million to Trump’s inauguration, had its SEC civil case halted in February. Its CEO, Brian Armstrong, also attended a March 7 crypto summit at the White House, along with Garlinghouse and others. 

Alderoty suggested that the SEC dropping cases was “independent” of any political donations and more reflective of Acting Chair Mark Uyeda’s perspective on the industry and related regulations.

At the time of publication, the US Senate has not scheduled a hearing to consider the nomination of the potential next head of the commission, Paul Atkins. Commissioner Hester Peirce said in February that the SEC would be more likely to wait on setting a crypto regulatory agenda after a new chair took office.

Magazine: SEC’s U-turn on crypto leaves key questions unanswered

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Memecoins—from internet jokes to crypto’s cultural engine

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Memecoins—from internet jokes to crypto’s cultural engine

Memecoins—from internet jokes to crypto’s cultural engine

Opinion by: Sasha Ivanov, founder of Waves and Units.Network

Not long ago, the idea that an internet joke could become a multibillion-dollar asset class seemed laughable. Today, memecoins are not just mainstream. They are reshaping entire market cycles. The US now has an official memecoin associated with the president. What started as a niche community experiment has become a financial force too big to ignore.

This isn’t simply speculation. In November 2024, memecoins accounted for 65% of the total trading volume on the decentralized exchange Raydium, an all-time high. Once dismissed as internet gimmicks, these assets have become crypto’s cultural engine. This phenomenon has been causing a slight identity crisis for believers and skeptics, who need to rethink their positions. 

Whether viewed as the next retail-driven market movement or an unsustainable mania, one thing is clear: Memecoins are no longer a joke.

Memecoins are more than speculation

At their core, memecoins thrive on community belief. Traditional financial assets derive value from utility, institutional adoption or revenue models. Memecoins, by contrast, are driven by social engagement, virality and the power of collective momentum.

That makes them one of the most effective onboarding tools for retail investors in crypto. Memecoins strip away the complexity of blockchain technology, making digital assets approachable, familiar and culturally relevant. For many, they are the first step into Web3, opening the door to decentralized trading, governance and finance.

What makes them accessible, however, also makes them volatile. The same market mechanics that send memecoins soaring to billion-dollar valuations overnight can just as easily cause them to collapse within days. While one trader might turn $66 into a $3 million profit, thousands of others end up holding worthless tokens when the hype fades.

The volatility problem no one can ignore

The numbers tell the story. When Elon Musk changed his X username and profile picture, a memecoin linked to him skyrocketed to a $380 million market cap. Once Musk reversed the changes, the coin plunged to $100 million before plummeting even further.

Recent: ‘Memecoins are archetypes of the collective unconscious’

This is not an exception. This is the memecoin market in action. It is unpredictable, profit-driven and fueled by speculation. While some traders thrive in this environment, most do not. The skeptics argue that memecoins are little more than a casino with a blockchain — a game where few win and most lose.

Dismissing memecoins outright ignores a larger reality. Memecoins aren’t going away, regardless of the skepticism. They are shaping market trends. The real question is: Can memecoins transition from hype-driven speculation to a structured financial asset with governance and longevity?

Governance is the key to long-term survival

If memecoins are to evolve beyond short-term trading cycles, governance must take center stage. Decentralized autonomous organizations (DAOs) offer a model that allows holders to shape token supply, enforce transparency and influence project direction to give memecoins a real shot at sustainability.

This structure prevents centralized control by developers and whales, reducing the risk of insider manipulation, exit scams and pump-and-dump schemes. It also ensures that memecoins can integrate treasury management, staking incentives and token supply models that promote long-term viability rather than short-lived speculation.

A prime example is Floki Inu (FLOKI), a memecoin that successfully built a functional ecosystem beyond meme-driven trading. Rather than relying on short-term speculation, Floki Inu integrated non-fungible token (NFT) gaming, payments and educational initiatives, proving that memecoins can evolve into structured, community-driven assets.

Memecoins don’t need to abandon their cultural origins, but to survive beyond the current hype cycle, they must adopt governance mechanisms that promote economic sustainability.

Memecoins are at a crossroads

Memecoins have divided the crypto space into two extreme camps. On one side, memecoin maximalists insist that this bull market will be dominated by memecoins, arguing that belief and virality alone are enough to sustain them. On the other, skeptics dismiss them entirely, viewing them as pump-and-dump schemes that will eventually implode.

Both perspectives miss the bigger picture. Memecoins have proven their ability to drive market activity, but ignoring their risks is just as reckless as dismissing them outright. The real challenge is not whether memecoins should exist. They already do. The question is how to structure them to ensure security for investors, stability for the market and long-term credibility for the industry.

Builders, regulators and communities must collaborate to balance decentralization and responsible governance. Ignoring memecoins as a passing trend would be shortsighted. Failing to address their risks could be even worse — potentially leading to a catastrophic collapse that damages public trust in crypto as a whole.

Memecoins are here to stay. The real test is whether they will remain a speculative rollercoaster or mature into a legitimate digital economy sector. The answer lies not just with traders but with the builders, developers and policymakers shaping blockchain’s future.

Opinion by: Sasha Ivanov, founder of Waves and Units.Network.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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