Cryptocurrency was born out of a lack of equality in the traditional financial system.
Unfortunately, powerful actors are diligently working to centralize cryptocurrency in an effort to take control. This alarming trend is harming everyday people and lining the pockets of a new order of powerful crypto-elite. Worse still, it threatens to destroy the egalitarian ideals cryptocurrency is designed to uphold.
Decentralized exchanges, or DEXs, are the cryptocurrency trading gold standard. They aren’t manipulated by any bank, company, or other central authority. Instead of acting as a fee-charging, self-interested intermediary between buyers and sellers like centralized exchanges (CEXs), DEXs rely entirely on smart contracts. The contracts operate on blockchain to automatically coordinate large-scale trading between users without any need for human intervention. The transactions are stored on a public database that can’t be altered and is easily visible to anyone who cares to look.
While many excellent Decentralized exchanges are available, huge companies like Coinbase and Binance increasingly dominate cryptocurrency trading. Coinbase is a publicly-traded company, and Binance plans to go public by 2024. This is problematic and contrary to the original spirit of crypto because publicly traded companies have their shareholder’s best interests at heart, not their users or customers.
Power Plays: CEXs Are Trampling User’s Rights
Massive CEXs routinely make sweeping decisions based on their bottom line and not their user’s best interests.
Coinbase Locks Out Russian Wallets
CoiCoinbase recently locked out 25,000 Russian wallets with no warning citing concerns that cryptocurrency could be used to evade sanctions in the country. Unfortunately, Coinbase did not explain how they determined which wallets to block. Notably, the current sanctions do not apply to Russian Citizens to whom the vast majority of these wallets likely belong.
Binance Freezes out Ontario
Binance, the largest CEX globally, recently moved to end all accounts in Canada’s Ontario province, home to over 14 million people, after a dispute with the Ontario Securities Commission (OSC).
Binance Locks Nigerian Wallets
Binance also recently blocked almost 300 Nigerian wallets. They offered users no explanation for why they were specifically targeted and provided no recourse for reclaiming their funds. The move led to the hashtags #BinanceStopScamming, #BinanceStopStealingCrypto trending, and calls for a Binance boycott in Nigeria.
The cases above illustrate one of the fundamental differences between centralized and decentralized exchanges. Centralized exchanges can be threatened by governments and manipulated by politics in ways that harm users, while DEXs are immune to these kinds of threats.
Your Assets Are Vulnerable on Centralized Exchanges
Cryptocurrency-related hacking is on the rise. Billions of dollars in crypto-assets on CEXS are an irresistible target for cybercriminals.
Bitmart Loses $200 Million
In late 2021 hackers successfully stole $200 million from users of top CEX Bitmart. In response, Bitmart froze all user transactions for three days, separating millions of people from their assets. Bitmart admitted it was “unclear” how the hackers accessed the funds.
KuCoin Loses $275 Million
In what amounted to the single largest CEX hack in 2020, Kucoin lost a staggering $275 million in user funds. Notorious North Korean hackers Lazerous Group are accused of mounting the attack.
6000 Coinbase Users Hacked
In the spring of 2021, Coinbase revealed a theft from 6000 users at the hands of hackers. The heist was partially due to hackers exploiting a flawed SMS account recovery system.
Binance loses 7000 Bitcoin
In 2019 hackers stole 7000 Bitcoin, valued at $40 Million, from Binance. In the wake of the incident, Binance said that “hackers may still control certain user accounts and may use those to influence prices.”
Binance Faces Insider Trading Probe
US regulators are probing Binance for possible insider trading and market manipulation. The concern is, the company has data on millions of transactions and may be trading on orders before executing them. This textbook insider trading would be a financial crime, but it would also be woefully at odds with the interests of Binance users.
Centralized Exchanges are Ethically Problematic, But Users Have Alternatives
Today, most transactions take place on powerful CEXs like Binance, Coinbase, and Crypto.com rather than decentralized platforms like UniSwap, PancakeSwap, and SushiSwap. However, aside from the issues mentioned earlier in the article, there are other problems inherent to CEXs that are antithetical to the true spirit of crypto that can be easily avoided by performing transactions on DEXs instead.
- Strict Know Your Customer (KYC) Policies- One of the most equalizing things about decentralized blockchain technology is the anonymity it allows. Users can buy, sell, and swap cryptocurrencies with complete anonymity using DEXs and non-custodial wallets like Metamask and Exodus. In contrast, CEXs require your identity and a picture of your ID before you can perform transactions or make withdrawals.
- Not your Keys, Not your Coins- Many people using CEXs store their assets directly on the exchange in custodial wallets controlled by the exchange. It’s far more secure to use a non-custodial wallet that you and you alone control.
- Vulnerability- CEXs are juicy targets for cybercriminals and have been subject to spectacular hacks in recent years. According to blockchain analytics group, Chainalysis hackers stole $14 Billion in crypto-related scams last year alone.
- Withdrawal Limits- Many CEXs have withdrawal limits meaning you might not be able to access all of your funds when you need them. The limits further illustrate that when your crypto is on a centralized exchange, it’s not under your control.
The crypto-revolution is upon us. Today’s $2 Trillion cryptocurrency market will almost certainly grow exponentially in the coming years. Cryptocurrency has already disrupted a global financial system that has favored the elite at the expense of regular people for centuries. Still, the gains in economic equality that we have realized as a result of cryptocurrency are in danger of being overturned. Powerful centralized exchanges that value their own self-interest and preservation over the rights of their users threaten to overtake the market.
Fortunately, cryptocurrency users have other options. By using decentralized exchanges, people can protect their assets and freedoms while keeping their funds out of the hands of those who seek to corrupt crypto’s autonomy to benefit a few.