Bitcoin Forum

It depends on how the owner treats it. I was really pondering on this and decided to share to know what others feel about this. If Bitcoin is preferably kept in Centralised exchange i think it is no longer decentralised to the owner because the don't have the keys to unlock and spend their coin but rather the rely on this third party intermediaries who decide how much the are eligible to transfer depending on their KYC verification level.

I believe private keys is what makes every Bitcoin owner decentralised not just the coin itself so if CEX is preferred over DEX and hardware wallets specifically open sourced wallets then the idea of centralised slavery is what should be dealt with. The fear of misplacing seed phrase and private keys is still a big concern to many who believe they are careless with storing and keeping important datas.

In my opinion if decentralisation were to be a coin then no matter where it is stored it should be accessible no matter what happens, even if the exchange fails. But because it is dependent on where the coin is stored then it is what the coin owner makes of it. It is decentralised for non-custodial wallets holders as the can always prove the coins are theirs anytime and centralised for custodial wallet holders because the can only access their funds if the are well verified and provided the exchange hasn't collapsed.

I'm not 100% sure if I totally get what you're trying to say, but you're probably getting mixed up between centralized/decentralized and custodial/non-custodial.

I understood your point, but bitcoin is decentralized in design. The use of centralized exchanges and custodial wallet is not bitcoin, what is basically about bitcoin is the blockchain, running full node, mining and what is not centralized, like noncustodial wallets. Everything about bitcoin supposed to be trustless, but what people know these days is to depend on someone before try can own bitcoin, when they only just have to depend on themselves.

Mr A has bitcoin, wanted to send to Mr B, that should be in a transaction which require miner to include the transaction in a block. If they use a centralized exchange or a custodial wallet, all what that would be done by the exchange or wallet is to just edit the number and no transaction occur on blockchain. So those are not about bitcoin.

Most custodial wallets are web based exchanges. I believe in layman terms non-custodial means not having custody and in crypto it means been in full possession of one's private key. Like solely responsible for ones coin.

Not most, but all

Edit:
I meant that all custodial wallets are web based. Some may not have exchange functionality.

You have a wrong thought, Bitcoin isn't become a centralized coin when someone leave his coin on centralized exchange, the coin is still decentralized but you're not the one who can have full control over your coins since the centralized exchange own your private key. If Bitcoin become centralized coin, the problem isn't about the centralized exchange only, but the creator aka Satoshi Nakamoto can control the coin, manipulate or add the supply etc.

A decentralised coin in the hands of centralized entities doesn't make the coin centralized, Bitcoin was never meant for people who only cares about decentralise only and not all people will prefer decentralise over centralise.

Bitcoin is decentralised and if users or buyers deposit such coins into the hands of centralized platforms it's no ones fault but the users, keeping my BTC on coinbase for example doesn't make BTC centralised, I am only risking losing my decentralised coins to a centralised exchange.

What do you mean by editing the numbers? Does it mean if Mr A who owns the Bitcoin and decides to send some to Mr B using centralised exchange will not have their transaction  on the blockchain?.

This is how Binance and any other Centralized Exchange works.  As a trader, particularly as a daytrader, you are looking for speed of actions.  You need everything to happen in one click.  So instead of every transaction happening on the Bitcoin chain, all you get is just the e-mails that your trade has been complete and the notification on the screen.  If you try to look any Binance or Coinbase transaction up on the Blockchain, except withdrawals and deposits, they are all nonexistent.

If every Coinbase and Binance transaction happened on chain.  Sometimes you will have to wait hours for a single trade.  And I can not even imagine how clogged Bitcoin's mempool would be.  Imagine the mempool during a panic in the market.  They would likely need to use a second layer solution to make things easier on the Bitcoin Blockchain.

If you are not in a hurry and do not care how quickly the Exchange orders fill you can easily use Bisq to fulfill your needs, but if you are and need to immediately swap funds then you will need a Centralized Exchange to work with.

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Regards,
PrivacyG

Nope, you just moved the control rights. That centralized entity also can't reverse transactions when customers complain about incorrect transfers to external wallets. And that doesn't mean they're also eliminating the risk of decentralization by hoarding it in one place, however. Their worries are the same (even more) when they hold people's bitcoins.

I think you're some how missing the point on how Bitcoin works, All this process you listed out there does not change the system of operation which no one controls or decentralized nature of Bitcoin itself, Basically the transaction that occurs on the Blockchain, rather this exchanges somehow helps in such a way to make it a bit easier for people who might find it difficult with managing or storing their keys.

Therefore having your cryptos stored in a centralized exchange doesn't make Bitcoin become Centralized.

Just as ETFbitcoin explained it, no transaction on blockchain because both Mr A and B coins are owned by the same centralized exchange on the blockchain, so the exchange just edit the number for them, no on-chain transaction.

Even if we should refer to custodial wallet, we supposed not to use exchange but wallet, that's a mistake from me. But what I meant was that the custodial wallets are web based, even if using their app. Or is it not like that? Any app that do not have the function to give some information intrinsically but rely purely on the web are web based.

To me this sounds a bit confusing. If a person is afraid of losing the passphrase, that is, if he understands his fears, then what is he worried about? What does he do in ordinary life? He does his best to protect what is important to him. Finally, if three archives of saving his phrases are not enough for the paranoid, he will make thirty-three. I mean, if we understand the danger, then we can prepare and protect ourselves.
I still think the OP has some translation difficulties. Because centralized slavery, as the OP puts it, will in no way ensure the loss of what a person personally owns.

Not a coin itself? Bitcoin has decentralized nature itself.
For a perfect combination, a decentralized exchange or wallet for a decentralized coin should be better. That is it --it is a very simple analogy. You really mixed it up the thing which makes confusion others.
All open-source software is decentralized that runs on a peer-to-peer ^[P2P] blockchain network --so you have full control over your key while centralized exchanges are far away when it comes to keeping the private key and no one will perhaps careless to keep such valuable belongings.

KYC is another issue but the most important factor is "Not your keys, not your coins" with or without KYC, it is always true.

Decentralized is a term to mention about Bitcoin network, not a Bitcoin wallet or a Bitcoin owner. With wallet, we have custodial and non-custodial wallets.

If they use a non-custodial wallet to store their Bitcoin, they must know what they are doing, how to do it safely and correctly. They must learn to get knowledge about it and practice makes perfect.

• Security checklist (https://cryptosec.info/checklist/)
• Bitcoin & Cryptocurrency Wallets: The Definitive Guide (https://cryptosec.info/wallets/)

Yeah this is appropriate in the above context because if you are using CEX then bitcoin is in their custody as they have the keys under their control so this is something say having the ownership of your coins with it they can spend it but this doesn't change the nature of bitcoin and it remains decentralised only.With using these exchange you are diluting the purpose of bitcoin as keeping your funds in custody of centralised service won't help you at all.

This is what actually @OP might be trying to explain that if you are not keeping your funds under your custody then actually you are not having the usage of decentralisation as these exchange will put restrictions on you like KYC norms or even under government pressure they can give users data to them in order to track your records or not allowing you to withdraw your funds so you are not experiencing decentralisation with it but we need to be appropriate in usage of terms here.

If Bitcoin was centralized that central authority could edit any Bitcoin transaction they want. Bitcoin is 100% decentralized and this cannot happen. That is what they are saying so your initial message in this topic is wrong. Bitcoin is decentralized and remains decentralized despite what a person might do with their coins. You can store your Bitcoin on a centralized wallet but you cannot make Bitcoin centralized.

The nature of bitcoin is a decentralized system which makes transactions to be controlled by blockchain. Imagine you are given a wallet filled with money to give to your dad instead of giving it to your dad, you gave the money to your friend to hand it over to your dad because he will get to your dad before you.

This your friend took the wallet filled with money and ran away with it without giving it to your dad,will you say because this wallet was given to your friend to give your dad is no longer a wallet to keep money. The money was given to the wrong person because of you are eager to make sure the  money gets to your dad. This is the same thing we are saying bitcoin is decentralized so  it should be stored in a non custodian wallet to keep its feature of decentralization, keeping it in a centralized system means that you are abusing its features and that is why you pay the price by losing your coins in the centralise exchange.

If you choose to let it stay on exchange it is under the centralization since its not on chain what you see on your spot wallet. The real deal is when you use a wallet that is non custodial open source and stored your bitcoin there.

Even we go left and right, btc on sample Binance will still be acknowledge as centralized. But the ability of decentralization is being ponder on that thought alone. Anyway I get what you are trying to say.

The state of a blockchain (particularly in this thread, for Bitcoin) is independent. Meaning, it doesn't change whenever you sent your bitcoin. Blockchain is different from wallets which is what you are referring to in your post.
Refer to the following scenarios:
A. if you sent your bitcoin to yourself/others to a non-custodial wallet like MyCelium.  
B. If you sent your bitcoin to yourself/others to a centralized exchange (meaning, has the key of the wallet = custodial) like Binance.

In both of these scenarios, your bitcoin is still and always be in the decentralized state. Compare A and B. You should understand that it's just like sending your BTCs to any entity, its state does not change regardless if the exchange is centralized or not.

By default bitcoin is meant to be decentralized when i user identify this and go by it, now you get your bitcoin through a decentralized exchange and also store them on a wallet that can privately present you with the keys to accessing your coins or when you consciously run a full node or get yourself a hardware wallet, as long as your bitcoin will not be stored with a third party agent or exchange you're totally decentralized.