Decentralized cryptocurrency exchanges: trust or not?
Today's cryptocurrency community is hard to surprise with any predictions. Bitcoin exchange rate forecasts of $200,000 and $43 appear in the media with enviable regularity. Stock exchanges are not left out of this. According to one forecast, in five years traditional cryptocurrency exchanges will cease to exist, giving way to decentralized platforms on the blockchain.
Decentralized Cryptocurrency Exchanges (DEX) are gradually gaining popularity, but should they be trusted?
Why decentralized?
As you probably already know, regular cryptocurrency exchanges violate one of the basic principles of cryptocurrency - anonymity. The fact is that in order to operate in a legal field, it is necessary to comply with the requirements of the U.S. and EU anti-money laundering laws. Therefore, cryptocurrency exchanges follow principle KYC (know your customer) - In order to conduct transactions, users have to go through a verification procedure, providing copies of their documents. Naturally, there is no question of anonymity.
But the popularity of decentralized exchanges does not end with anonymity alone. In general, the cryptocommunity rather negatively perceives the attempts to regulate the sphere of digital assets through the intervention of states, on the territory of which exchanges are based. It is the decentralized platforms, the activities of which are not located within the jurisdiction of any country, most of all meet the principles of freedom of cryptocurrencies, which the creator of bitcoin spoke about Satoshi Nakamoto.
In addition to conditional freedom, DEX exchanges provide some assurance that no government can limit or stop their work.
We should note right away that one should not think of decentralized cryptocurrency exchanges as some kind of haven for orthodox anarchist crypto-enthusiasts. For example, the Bitfinex exchange has developed a decentralized coin trading platform, Ethfinex Trustless, and Binance is beta-testing a decentralized Ethereum-based Binance Chain platform. To be fair, it should be noted that Bitfinex and Binance are experimenting with decentralization not to get out of the legal field, but to solve a number of technical and organizational problems.
Pitfalls of decentralized exchanges
You already know about the advantages and disadvantages of decentralized cryptocurrency platforms. In brief
- The advantages of DEX - anonymity and inaccessibility of client funds to no one but the user himself;
- disadvantages - low liquidity, as well as the still unsolved problem with the scalability of the blockchain.
And if everything is clear with the advantages, then the disadvantages are worth talking about separately. What are we worried about first of all? Right, the security of investments. Don't have the delusion that your money is inaccessible to hackers, because private keys are only held by you. So how safe are decentralized crypto exchanges?
First of all, it should be understood that DEX exchanges operate on the blockchain. That is, with all the advantages of blockchain we get its disadvantages. For example, Hackers can attack a distributed registry or smart contracts. In addition, it may turn out that the code has some errorswhich, as practice shows, are discovered at the least opportune time. There you have the first "pitfall". But no one is surprised by hackers these days, so let's move on.
При появлении каких-то проблем технического характера можно связаться с техподдержкой. И здесь кроется второй «подводный камень» – мы имеем дело с децентрализованными биржами, на которых technical support is simply not provided. In fact, we are not talking about any increased security for the client. We are simply dealing with a redirection of the threat vector.
И третий по счету, но, пожалуй, первый по важности «подводный камень» – это legal status of decentralized cryptocurrency exchanges. DEX trading platforms have no territorial affiliation, there are no legal entities associated with these exchanges. As long as everything goes smoothly for the client, no one will pay attention to it. But as soon as disputes or problems arise, there will be no one to solve them. That is, you will not be able to file a lawsuit, challenge something, or assert your rights.
Legally, a decentralized cryptocurrency exchange as an organization or service does not exist, so you can complain to the UN - no one will help you.
In general, to give an adequate assessment of the level of security of the use of decentralized cryptocurrency exchanges, it is necessary, as they say, to accumulate statistics, that is, it should take some time.
In its current form, DEX exchanges in no way guarantee the protection of their clients' rights. If on classical exchanges the responsibility for user safety partially lies with the trading platform, then on decentralized exchanges nobody will guarantee you anything - all the risks lie with the users themselves.
Decentralized cryptocurrency exchanges - good or bad?
Should we trust them at all? There is no definite answer. It is worth carefully weighing possible risks and then decide what is more important to you - the advantages or disadvantages.
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