The incidence of hacks and liquidation of users' funds in exchanges and similar platforms in recent times has become too worrisome for us to forget. The recent FTX exchange liquidation and hack which led to billions of dollars being reported lost is gruesome and deserves all condemnation possible.
Considering how the past year has treated cryptocurrency users, there is a call from several quarters for Government to wade into cryptocurrency by way of regulations. This is believed could guarantee users' protection and prevent bad actors from duping investors. At the same time, it would ease the way for more people to participate in the ever-growing digital currency economy. However, this will further make the road to having a fully decentralized currency tougher.
The blockchain upon which cryptocurrency is based is said to be highly decentralized since it cannot be owned or controlled by any one person or company, the custodian is said to be the public. But the presence of exchanges and similar platforms in the crypto space is seen to dampen the chances of achieving a fully decentralized state for crypto. Because, in a situation where some operator of exchange goes astray, they would have assets and clients' funds in their hands and could do anything with them, which is usually not in the interest of their clients.
It is said that decentralization is the only way to go for cryptocurrency as it can give power to the people, and ensure that users' funds are always SAFU. One such action to make crypto fully decentralized is for users and investors to remove their assets from the decentralized exchanges and platforms to their individual non-custodian wallets, and keep their private keys safe. But, will people ever do that?
The year 2022 has witnessed the most bizarre incidences in the crypto space that could make people embrace decentralization fully. With the insolvency of high fliers CEFI such as Celsius, BlockFi, Voyager, and now FXT exchange going bust, it is believed the time is now for cryptocurrency users to reject centralized exchanges and platforms. Because every time a centralized exchange goes down, hundreds of users' assets are destroyed. It's hard to understand why people tend to trust centralized exchanges to save their money from hacking when these have proved not to be such reliable safe havens for their money.
Apart from trading, centralized exchanges are good for nothing as some of them have hacked and stolen funds. Some of them are said to even freeze victims' funds for no reason at all. To top it all, these centralized exchanges keep disappearing like the Madoff Ponzi scheme, and their owner's whereabouts are not known to the customers.
Decentralized finance (DEFI) is the only way out
Most people who leave their assets in centralized exchanges and CEFI do so to earn a profit. But, DEFI technology is there to change the equation completely. As soon as the user transfers his or her money into a decentralized platform, the exchange will no longer have control over the assets and the funds cannot be confiscated by the exchange even when going down.
A decentralized exchange can only go down with its native asset and the funds of those who invested in the token. This is usually referred to as a rug pull. With some coding skills, users can still be able to recover their non-native assets from such a decentralized exchange. But, when a centralized exchange goes down all assets that are left in the platform belong to the exchange itself. Such assets are usually frozen out and the exchange locked.
The reason most users are taking an interest in crypto is said to be because of its potential to help them make money or make a killing. Decentralized finance platforms have much more to offer to users and investors in terms of making money than centralized exchanges. Besides, DEFI technology is said to be in the development phase and it has proven to be more efficient and reliable than centralized exchanges.
Meanwhile, the use of the decentralized exchange can only grow in the next two to three years and it could fully revolutionize the cryptocurrency space.
In conclusion, Government regulations on crypto cannot guarantee users' security because they cannot prevent hacking and insolvency. They can only help in litigation over lost funds.
Furthermore, users and investors should consider the pros and cons of centralized and decentralized exchanges. But, the world of finance is said to be changing and we can only wait for the next "rudder" to bring about change in the cryptocurrency space.
It is said that the future will bring a decentralized world and if we believe it, then we must adopt it.
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