Transaction security is one of the key aspects when it comes to the world of crypto. In this article, we will take a look at the existing options for transferring funds and analyze the most common user mistakes.
Renowned token networks
Even crypto-savvy users may have a hard time when choosing the right network for their next transaction. Nearly 95% of all assets trading on crypto exchanges are digital tokens hosted on a dozen different blockchains. Here are the most widely-spoken about:
OMNI is an add-on protocol that allows users to create their own tokens based on the Bitcoin (BTC) blockchain. It utilizes BTC as a native token but is rarely used due to a low transaction speed and very high fees.
ERC20, with Ethereum (ETH) as a native token, is the Ethereum blockchain protocol. Currently, it is the most popular environment for digital tokens.
TRC20 protocol is known for its low transaction fees when it comes to sending and receiving USDT. This protocol utilizes TRX as a native token.
BEP2 is a protocol of the Binance chain which uses BNB as a native token.
BEP20 is the protocol of the Binance Smart Chain that is compatible with both BEP2 and ERC20. Despite the fact all fees are paid in BNB, it has no official token.
This protocol was designed to allow a fast and seamless token migration from other blockchains. It has one of the lowest transaction fees on the market but, just as BEP2, it is a product of the Binance ecosystem. It sometimes may confuse inexperienced users during their attempts to withdraw tokens to external wallets.
In addition to digital tokens, there are also tokenized assets, like Tether, which are backed by fiat currencies or other physical assets. Such digital assets may exist on several blockchains at once.
Similarity of the wallet address formats between different blockchains is the main reason for confusion among users. For example, Ethereum and Binance Smart Chain protocols use the same address format, which makes it necessary for users to specify which network they want to use for a transaction.
Some popular wallets, such as MetaMask or Trust Wallet, support both ERC20 and BEP20 and allow recovery of tokens even in case of the usage of a wrong network. However, it will be possible only if the wallet addresses in ERC20 and BEP20 are the same.
Why networks matter?
When withdrawing assets from a centralized exchange to an external address, users may face one of the most common and unpleasant mistakes when dealing with crypto - the wrong choice of a network.
Binance users are likely to struggle more than any other since there are plenty of tokens from all existing blockchains listed on the exchange.
After choosing a cryptocurrency users want to withdraw from the exchange, they must select the transaction network. This becomes the main stumbling point for inexperienced users, since they only see the difference between transaction costs and often choose the network with the lowest fees.
As seen from the example above, the difference in transaction fees between different systems can be dramatic.
Today, most crypto exchanges automatically check withdrawal addresses to prevent users from sending funds to obviously “wrong” networks. Users simply won’t be able to send ETH via the BEP2 or TRC20 networks.
ERC20 tokens cannot be transferred via the TRC20 network, no matter how lucrative the transaction fees may look. Even if the user has somehow managed to get such transactions approved, the tokens will never make it to the destination wallet. And, unlike in a centralized banking system, such an action cannot be reversed.
To make sure any transaction will be properly executed, follow this simple rule:
Always conduct transactions in the native network of the beneficiary address.
Imagine a situation when you need to send some fiat money to another person via a bank transfer. Before doing it, the person must provide you with their bank details. If this information is wrong, the funds won’t reach the recipient’s account.
5 common mistakes when withdrawing crypto
Every time you withdraw crypto from your exchange or transfer it to another wallet, make sure you do not fall prey to the following mistakes:
- Choosing the wrong network. When transferring, determine which networks are supported by the recipient’s wallet, compare this data with the sending options, and only after that proceed with choosing the option offering the lowest transaction cost.
- Forgetting about MEMO. In addition to the wallet address, some networks may require additional information like MEMO, Tag, or Payment ID. Such requirements are common for transactions within the BEP2 network or when dealing with XRP, XLM, or XMR. In some cases, users can file a Tag/MEMO Recovery application, but a refund is never guaranteed.
- Sending the wrong coin. Some networks have similar wallet addresses, which may confuse some users and increase the likelihood of sending the wrong coin. A user may accidentally send Bitcoin Cash (BCH) to a Bitcoin wallet address or vice versa. In this case, the loss of funds would be imminent.
- Depositing assets delisted from the exchange. Some users often make deposits on crypto exchanges directly from their wallets, with saved data. This way, it may be so that the user sends coins to the exchange, without knowing the token has been delisted. Thus, there is a risk of not getting their coins back.
- Ignoring transaction fees. When withdrawing funds from an exchange, the commission is usually deducted from the transfer amount. As a result, the recipient gets a smaller amount, which may cause problems especially if the user wants to send a certain amount.
Binance is apparently the only crypto exchange that allows its users to use its own blockchain, Binance Smart Chain/BEP20, to transfer and store tokens. BSC lets users store ERC-20 tokens as BEP-20 tokens, thus saving on fees and transaction speed within the exchange's ecosystem.
When transferring tokens to external wallets, make sure you’re not using any network starting with BEP. Despite the fact some users may attempt to recover their tokens, most of the transactions on the blockchain cannot be reversed. Sending crypto via the wrong network or using a wrong address will most likely end up loosing assets you attempted to transfer.