The main idea of blockchain and cryptocurrency is decentralization. However, exchanges – the most popular tool of the industry – are still centralized, which conducts quite serious risks for users. Is your cryptocurrency stored in a third-party organization wallet? This article is for you.
Here are some clear examples:
The Collapse of MT.Gox
The site of the exchange stopped working on February 25, 2014 at approximately 7:30 am Moscow time. As a result, it turned out that hackers stole about 744 thousand of bitcoins. At the current exchange rate it is almost $ 6.5 billion.
Users who came to the cryptocurrency industry during 2017, consider Bitfinex as one of the most reliable and convenient exchanges. However, very few people know that in August 2016 about 120 thousand bitcoins were stolen from its accounts. It is more than $1 billion at the moment.
In December 2017, hundreds of thousand users found that they could not withdraw their funds from accounts, because of the exchange’s immediate decision to launch an account verification, which was not required before. The result – a giant wave of support requests, which were not responded for weeks by the platform staff.
Stealing Bithumb User Data
Attackers got access to the accounts of 31 thousand of users of the largest Korean exchange – Bithumb. The exact amount of damage dealt remains unknown, but the fact remains fact: tens of thousands traders were affected.
Also, there is no guarantee that the accounts of the exchange are not to be arrested (cm. the BTC-E exchange case), or that the creators/employees does not plan to run away with all the users money.
The conclusion suggests itself: crypto exchanges in their current state are tools of extreme risk.
What the decentralized exchange is?
It is a technology that allows you to trade through a service, which is carried not by a group of people, but directly by users using the blockchain and smart contracts. I know that it sounds difficult, but let's try to figure out how it works on a concrete example. The decentralized exchange EtherDelta allows users to trade cryptocurrencies with no third parties involved. There is only a wallet of the seller, the blockchain, which isn’t controlled by anyone, smart contracts, and a wallet of the buyer.
How does the trade proceed
Advantages of Decentralized Exchanges
Your cryptocurrency remains your cryptocurrency!
Disadvantages of Decentralized Exchanges
We are confident that time simple and transparent decentralized exchanges will start to appear in a short period of time, and users will be able to trade cryptocurrency without risk of losing their savings because of scam. For now, we can only advise you to begin to sort out more details of how such sites work.
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