Investors get full custody of their assets on centralized exchanges, which means they have to manage private keys securely. Although it seems too early for decentralized exchanges to experience mass adoption, the community hopes the next bullish cycle will solve hacking issues.

The worst DeFi exploits of 2022, occurring in October, caused users to doubt the advantages of centralized exchanges. Although many view DeFi as the future of finance, those incidents show there is still a long way to go.

A Comparison between Centralized and Decentralized Exchanges

New cryptocurrency investors usually prefer centralized exchanges (CEX) as the user interface (UI) is easy to understand. Meanwhile, users complain that decentralized exchanges (DEX) can be hard to explore since they find them almost unusable.

The saying “Not your keys, nor your coins” suggests that centralized exchanges do not offer users full custody of their assets. Although those platforms have control, they have access to their coins for trading or transferring them to decentralized wallets.

As for decentralized exchanges, investors get full custody of their assets, which implies having to manage private keys securely. Users can no longer access their funds if their private keys are at risk or lost. The lack of a central authority prevents them from recovering their holdings if they cannot access their private keys.

The Private Keys Allow Hackers to Own the Stolen Cryptocurrencies

The ETH balance of a Metamask user reportedly disappeared from his wallet, although he stored his seed phrase on paper. Those incidents and other hack cases in DeFi have caused users to wonder whether decentralization is an excuse for service providers to evade responsibility.

The victims of those attacks wonder who is accountable for their stolen funds, even if they stored the private key correctly. According to the crypto community, decentralized exchanges will not experience mass adoption in the short term. Although they hope the following bullish cycle will solve those issues, investors are moving their funds back to centralized exchanges.

Some Investors Believe their Funds Are Safer on Centralized Exchanges

Besides the incidents occurring in DeFi protocols, centralized exchanges have also been victims of cyberattacks. A classic example is Mt. Gox, a Japanese centralized exchange that handles over 70% of Bitcoin transactions worldwide. After hackers stole around 850,000 BTC, the stock exchange delisted and closed its website and trading services.

A statistic from Chainalysis indicates that most cyberattacks now target DeFi protocols. In 2022, platforms like Voyager and Vauld had to stop withdrawals and deposits and file for bankruptcy. Consequently, the users of those crypto lenders no longer have access to their funds.

The crypto community looks forward to accurate measures regarding centralized and decentralized exchanges. Both platforms should coexist harmoniously to allow investors to choose the one they consider better.

Meanwhile, Bitcoin is trading at around USD 19,617 and has accumulated a 3.2% gain over the last 24 hours. While its daily trading volume is above USD 43.38 billion, its market capitalization is about USD 376.23 billion, according to CoinGecko.

By Alexander Salazar

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