Bitcoin arrived in 2009 under a cloud of mystery as a response to the subprime mortgage crisis which showed the world that banks could not be trusted to act in the collective’s best interest.
Since then, we have moved further and further from the founding ideals of cryptocurrency.
Entities such as Binance, Coinbase and Celsius have been trusted by millions to hold custody of their money. But in the latter case, people were betrayed. Much of their money was taken and moved to FTX, specifically $320 million, without any recourse for the users who were then blocked from making withdrawals.
What more is there to say? If you don’t own the private key to a wallet, its funds do not belong to you and can be removed at any time.
Truly individual ownership of cryptocurrencies is most likely to be found on a DeFi platform. However, regulatory oversight might attempt to limit the power of these organizations as a reaction to the wild west of crypto.
Returning to the example of Celsius: this is a case of a CeFi company simply withdrawing funds that ostensibly belonged to users, but in reality never really did. You always take a risk with crypto investments, but DeFi allows you to control what happens with the risk rather than putting trust in someone else.
If we want to stay true to the founding ideals of cryptocurrency, we will see decentralization take center stage. Institutional investors may be more skittish around DeFi, indeed lawmakers will perhaps take a dim view of such projects.
The existing framework for cryptocurrencies does prove that users should be wary of CeFi and, if they want to manage their exposure to hacks, exploits and loss of access to funds, should keep their money on a platform or wallet where the keys belong to them and no one else.
There are pros and cons to using a decentralized exchange as there are with centralized exchanges.
With a DEX, often the system is built to cut out the middleman and connect users directly with one another to exchange cryptocurrency. Furthermore, each person is in direct control of their assets. Cheaper, often quicker and more true to the founding principles of cryptocurrency.
Using a CEX is more expensive although it offers stronger regulatory assurances. But these projects typically ask a user to use them as a custodian which leads to the distinct possibility that the individual will not be protected in severe market conditions. If a person’s cryptocurrency isn’t controlled by them, they can’t withdraw any of it should the exchange decide to block withdrawals.
New users may find a more pleasant and comfortable experience on a CeFi platform but it moves us ever further away from the values of cryptocurrency as a concept.
Experienced participants should demand self-custody at a minimum, with other decentralized features a bonus to be considered when choosing where to invest. The fact that Celsius, as a large and popular platform, could so brazenly block withdrawals and transfer $320 million to FTX in the same breath is a major warning sign to all people using centralized platforms.
Crypto Fight Club is a project founded on the principles of true decentralization: users are given full self-custody so their keys belong to them and as such so does their crypto. Lending aka. the scholarship system is decentralized, as is staking. The game only thrives as its users do in a self-sufficient, self-perpetuating economy designed to run off a power-to-the-people system.
Because if it’s not decentralized, you may be handing your entire investment in a project over to a centralized board with little concern as to the ideology cryptocurrencies are meant to represent.
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