Central exchanges are for trading and not for hodling
There's no universally accepted strategy to get ahead in the crypto industry. Any approach that you decide to go with must suit your personal requirements at the end of the day.
In virtually every crypto strategy, an exchange is often involved because it is a hub that you've assumed to be trusted enough to conduct business with other crypto traders.
Decentralised exchanges or simply Dexes are non-custodial, so you still have access to your assets that are onchain. In most cases, when an asset like Bitcoin, for example isn't on Hive blockchain, for example, a bridge, of sorts is built with a synthetic version of Bitcoin called Swap.Bitcoin is created in a 1:1 ratio.
Central exchanges, on the other hand, require you to physically send your crypto asset to a different wallet address and then trust them to credit your exchange wallet with the said crypto. In reality, the numbers you see on an exchange are just numbers and your assets there are only imaginary.
The crypto market has technically gone full circle, as the reliance on central exchanges continues to rise. Platforms that should be exclusively marketplaces have risen to the top of the pecking order, and pretty much control the fate of the industry as a whole.
I've always considered central exchanges to be banks of crypto. Ironically, crypto projects are striving for decentralisation but for some reason, we always fall back on Cexes.
Cexes are becoming more powerful
If we go back to the situation with Hive's fork from Steem, you will get an idea about how much power central exchanges wield. You will also notice that they're not exactly as neutral as they claim to be.
In fact, I believe that even if the cost comes as a disastrous market capitulation, exchanges will still prioritise themselves before concerning themselves with the well-being of their customers.
Central exchanges can virtue signal all they want with their eulogical sermons about how they're spreading the message of crypto to the world. In reality, they're self-serving pieces of machinery that prioritise lining their pockets over their customer's safety.
As @lordbutterfly stated in an earlier publication;
Centralized institutions endanger the whole system. Binance, we all know what they did when it comes to Hive, but with Terra for example, they propped up a failed platform, an absolute failure of an idea for quick gains. People lots billions. On LUNA 2 they lost billions again. The power they have over markets is insane.
The biggest irony in everything is that Cexes basically gather resources from a diverse group of entities striving to create a decentralised economy, and lump them into a centralised scheme. It is, perhaps, the greatest irony of the crypto industry.
Cexes are for trading
Financial times gathers that a number of exchanges halted Bitcoin withdrawal. It was only temporary and carried out to "protect" customers from the wicked volatility.
In reality though, this is just fractional reserve banking at play. The imaginary crypto that you hold in exchanges doesn't actually belong to you anymore and in a cataclysmic event, most central exchanges won't return it to you because they're using it for something more profitable to them.
It would be disingenuous of me to say that exchanges don't have their use. However, I think that the idea of using them as your actual 'wallet" gives them more power than they should have.
I believe that exchanges should be treated only as marketplaces where you simply do your trade and then at the end of the day, you move your assets back to the blockchain.
Even if you must hold on an exchange, let it be a small portion of your portfolio, rather than your main wallet. Central exchanges are for trading and not for hodling.
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Again, a very well written thought provoking piece! Thanks for sharing. I have taken my BTC off!
I agree with you. Long term holdings are to be kept in wallets for staking or just hodling purposes.
Central exchanges are just useful when it comes to movements and trading
I don't trust neither DEXs nor CEXs, but sometimes you can't do business without them.
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Absolutely. The "double-edged blade" as it were. Can't live with it, can't necessarily live without it. lol
I trust Binance, the world's largest centralized exchange. Still, I only use it primarily as a bridge between crypto networks.
I mean, trust is a strong word but yeah, they're quite dependable for a lot of things. I rely on their P2P channels to sell crypto for naira that funds my life.
Cexes are a necessary evil.
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You're a Nigerian right?
Yeah
How do you do p2p with binance, I thought that wasn't open to Nigerians? Or is it that you can sell but can't buy?
Necessary evil indeed. As I said in the comment I just posted... If we all lived in fear, none of us would have progressed. :P
I only ever trust anything in this world to an extent. We don't know that the sun will rise tomorrow, but we damn sure trust that to a substantial extent. The likelihood that when money is involved, shady or illegitimate shit happening, or sanctions/taxes/laws/etc to inhibit, occur, is highly likely and occurs on an almost daily basis where most business is conducted around the world. It's just something to consider, but if we all lived in fear, none of us would progress, right? :P
As people said since the inception of cryptos: not your keys....not your coins...
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This is becoming evident. Not your keys, not your coins is being driven home.
I moves my crypto off Coinbase a few weeks going. It wasnt a ton as compared to my overall holdings but it was a little bit of ETH.
No point in leaving it there.
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A while ago I moved all my crypto to wallets I control. These days, I only use centralized exchanges to buy stablecoins for the purpose of offloading them to my own wallets. As soon as the centralized exchange clears my purchases, I withdraw the stablecoins. Only then do I buy the cryptocurrencies I care about.
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This part made me remember the movie, Trust no one.... It made me realize sending money to exchanges is a risky move, and you might or might not get your money back. It was at this point, I realized why we keep getting people preaching that our coins are safer in our wallets and not exchanges.
Couldn't agree more. When you put your money in trust with someone, somewhere, that simply isn't you... You are at the will of their personal preference, discretion, and ultimately, their power. When you trust someone that isn't you with your money, they aren't making the decisions you would make, not entirely. Very well written and a great reminder to those who've been in crypto a while and seen perpetual exit scam after exit scam or failed market after failed market, and seen that you don't get what you give in the ways you do with other established assets... as well as anyone new to the Crypto atmosphere and communities. Insight into protection of one's assets is always a plus in my book and something to never be stopped talking about from time to time. It should be a continuous discussion as it renews the ideas and logic of thought behind those ideas, to ears and eyes old and new to any given financial "game" we may endeavor! Thanks for sharing with us!