Centralized Exchanges — Can You Really Afford It?
When it comes to cryptocurrency exchanges, unfortunately, many violate a key tenet of blockchain by not being truly decentralized. These exchanges are blatantly called centralized exchanges. Their users are not only risking their investments but are also tolerating a model that contradicts the nature and purpose of using the blockchain. For new and seasoned investors alike it is important to consider the flaws notoriously associated with centralized exchanges.
Centralized exchanges have a demonstrated history of being susceptible to hacking. One of the most devastating exchange hacks happened in 2014 on the largest bitcoin exchange in the world, Mt. Gox. This cyber attack caused the exchange to lose an estimated $460 million and resulted in the Japanese exchange’s bankruptcy. Since then, attacks have resulted in even more loss than the Mt. Gox hack. It’s difficult to find an experienced investor who hasn’t suffered some sort of loss on centralized exchanges due to hacking.
At their core blockchain and cryptocurrency have as a goal the removal of intermediaries and third parties when dealing with currency transfers. With a centralized exchange, users are bringing the middleman back into the mix, which comes with potential issues such as financial mismanagement by exchange operators and operational errors by employees. Thousands of crypto investors have experienced issues such as unexpected account closures and freezes, while some have even seen the exchange they were using fall into bankruptcy, taking all of the users’ funds down with them.
When it comes to a XendBit.com, also known as a DEX, exchange-wide hacking is essentially impossible. The tradeoff for this higher security is the potential for a customer to lose the information needed to access his or her funds. A DEX is run more like a peer-to-peer trading platform that does not hold investor funds. Digital assets are traded directly between the two transacting parties, and everything is transparently settled on the blockchain. By removing the third-party, a DEX provides faster and cheaper transactions.
An added benefit of using a DEX is that they can also be integrated with cold-storage wallets, increasing the security even more. Investors are always in control of their private keys, reducing phishing attacks dramatically.
There are a growing number of decentralized exchanges today, though many have a reputation of being hard to use, even for tech-savvy investors. XendBit is a new DEX gaining some significant attention due to its user-friendly interface and added features such remittance support, aid disbursements, and credit.
When it comes to storing cryptocurrency investments, choosing the right exchange platform is vital. By choosing a decentralized exchange platform investors can have security and peace of mind that their investments and financial security are in their control.
