New York Attorney General Eric Schneiderman announced on Tuesday that he is investigating at least 13 cryptocurrency exchanges, including the popular platform Coinbase.
"Too often, consumers don't have the basic facts they need to assess the fairness, integrity, and security of these trading platforms," Schneiderman said in a statement.
Schneiderman said he hopes to make exchanges more accountable and transparent to their clients. Each company will be asked in a letter to supply information on its "operations, internal controls, and safeguards to protect customer assets."
The news serves as a reminder that investing in cryptocurrencies is risky not only because they're new and their value is volatile — even the places where you buy them can be suspect.
There are at least 190 exchanges in operation, with new ones popping up every day. Most of them don't operate under any rules, regulations or obligation to replace your digital money should it lose all value, get lost, stolen or hacked. One of the first exchanges to go mainstream – Mt. Gox – ended in bankruptcy.
How do exchanges even work? To get started, investors sign up with an online exchange using their bank account, credit card or digital currency.
Yet instead of relying on a third party like a broker to execute a transaction as you typically do with a stock, bond or ETF, cryptocurrencies trade on decentralized platforms with no middle man.