If crypto trades are done off-chain, they are not real. The Economics of CEX's.

[Blue0x.com]

If trades are done off-chain via a centralized database (i.e. Coinbase and Binance) then they are not real trades.  They are nothing more than accounting entries of an asset.  This is not true price discovery. 

This also allows for manipulation of the said asset (crypto) that can be deleted with the strike of a keyboard button. 

What are your thoughts on the economic impact of Centralized Exchanges? 

[jackg]

I think you're making an attack a bit too far. Centralised exchanges have to remain competitive with each other as its easy to just move funds/exchanges if some have better or worse rates for what you want.

The exchange has an order book behind it too. Some of the trades may be being done by the exchange but this could still happen on dexes (just one large individual - the exchange still has to fund/compensate these movements in a cex imo).

[_act_]

Then what is real? If I have a friend, he sent me bitcoin on an exchange because we are traders and using the same exchange, this makes the transaction to be free but not an onchain transaction. But if he sent bitcoin to me, I will receive the bitcoin on my exchange account. It is real.

Just that anyone that is using an exchange like that should know that the exchange owners will have control which can be used against the person at any time like blocking of someone's account in a way the person will not be able to access the exchange again. This is the reason it is good to use noncustododial exchange and wallet.

About the economic impact of exchanges, they are law abiding and they are paying tax. Any company that is doing all these is contributing to the economy of the country they are. They also employed workers that are working for them, making positive impacts in the country they are located.

[hatshepsut93]

I think it sounds like some DeFi propaganda. But few people are going to pay $100 in gas fees to trade some crypto, regardless if they are long-term investors or daytraders, plus there's no way to use fiat money with DeFi, and stablecoins don't count, because people want to get money in their bank account in the end. So DeFi can't be a serious competitor for centralized exchanges.

[jackg]

I think it sounds like some DeFi propaganda. But few people are going to pay $100 in gas fees to trade some crypto, regardless if they are long-term investors or daytraders, plus there's no way to use fiat money with DeFi, and stablecoins don't count, because people want to get money in their bank account in the end. So DeFi can't be a serious competitor for centralized exchanges.

I'm not certain on this (as it mightve been a time based thing) but I realised it was cheaper to wrap coins into a contract on the phantom network (I think, from eth) and exchange them there - that did seem quite drastic it was something like $80 to wrap and unwrap (and essentially free to exchange) or $120 to use uniswap - there are projects trying to bring this to dexes which should make things cheaper provided they're arbitraged correctly.

"Bittrex, Poloniex Added to Lawsuit Claiming Tether Manipulated Bitcoin Market"
https://www.coindesk.com/markets/2020/06/04/bittrex-poloniex-added-to-lawsuit-claiming-tether-manipulated-bitcoin-market/

"Tether Accused of ‘Unlawful and Deceptive’ Practice in New Class-Action Lawsuit"
https://decrypt.co/88250/tether-accused-unlawful-deceptive-practice-class-action-lawsuit

Your problem is with an asset and a few exchanges? I don't even think coinbase allow usdt on their exchange (I think usdc might have some sort of backing) and it probably doesn't matter as these types of centralised stable coins will probably be phased out and it might be in an exchanges interest to adopt them - like many seem to have adopted wbtc.

[Upgrade00]

Then what is real? If I have a friend, he sent me bitcoin on an exchange because we are traders and using the same exchange, this makes the transaction to be free but not an onchain transaction. But if he sent bitcoin to me, I will receive the bitcoin on my exchange account. It is real.

Bitcoins are only transferred through on chain transactions, any other means are just numbers on the database of a platform and you can use this as normal. This is similar to how banks update your account when there is an incoming transaction, but the actual funds sent take a lot longer than that to be delivered to the receiving account.

[romero121]

There might be exchanges that serve the community in the similar manner same as the banks does, but everything is accountable when it comes to a bitcoin trade. Every transaction happens on-chain. Even if an exchange is believed to delete an entry it isn't possible. Maybe an exchange can have a cold wallet and the trades can be executed through it. However the cold wallet gets linked to the network.

Manipulation doesn't happen much through the exchange services, but through the positive and negative news around the market. If a DEX encounters account freeze, what will happen with the price discovery, same is with CEX.

[_act_]

Bitcoins are only transferred through on chain transactions, any other means are just numbers on the database of a platform and you can use this as normal. This is similar to how banks update your account when there is an incoming transaction, but the actual funds sent take a lot longer than that to be delivered to the receiving account.

How about lightning network? It is also offchain transfer but just that it is about bitcoin and not about centralized exchanges, centralized wallets or any other centralized ways. Lightning network is decentralized and I think it was proposed in BIP which makes it very different but it is still offchain transfer.

It is true that sending on centralized exchanges and custodial wallet are just a represention of numbers so far the sender and receiver are using the same centralized exchange or custodial wallet and use free transfer the exchange or wallet is providing. It does not add to the network at that time but it is because the centralized ways have the bitcoin on their wallet (bitcoin are stored on blockchain but you should understand what I am saying), the user can decide to transfer it through onchain if he decides. Centralized exchanges do not give complete control but the user can be able to make the transfer onchain as long as he is able to withdraw on the exchange or custodial wallet used. That is why I said how is it not real, it is not onchain, it is not lightning network but it is still real.

[Dragonfund]

Why do you need fiat in your bank account if you are a supporter of crypto?  Doesnt that defeat the whole point of crypto?  I agree that ETH gas prices are ridiculous.  That is a flaw with ETH, not DeFi.  Maybe you should check out the website that is my name.

Your first sentence is somehow not making any sense, why should I reject fiat because of my passion for crypto? It is indeed that we want every Tradfi to become defi but that wouldnt happen just over night my friend, the real life is still using Fiat and so do I but I am making sure that my crypto journey remain on check until one day the half of the world will go full crypto.

[_act_]

Why do you need fiat in your bank account if you are a supporter of crypto?  Doesnt that defeat the whole point of crypto?  I agree that ETH gas prices are ridiculous.  That is a flaw with ETH, not DeFi.  Maybe you should check out the website that is my name.

Your first sentence is somehow not making any sense, why should I reject fiat because of my passion for crypto? It is indeed that we want every Tradfi to become defi but that wouldnt happen just over night my friend, the real life is still using Fiat and so do I but I am making sure that my crypto journey remain on check until one day the half of the world will go full crypto.

Some people do not know that fiat and crypto may look the same but they are absolutely the same thing. I am very sure that no one in the world for now can do without fiat, fiat is still very important.

@Blue0x.com, I will like you to know that ridiculous fee is not only the flaw but DeFi is not totally decentralized and full of scam, billions of dollars were lost only in 2021.

[Husires]

We need centralized platforms because of the high speed, low fees and efficient database management that make speculation valuable.
It is true that it is an update of the databases but it still has value just like what happens in the movement of the balance in your bank account.
If decentralized platforms develop, they may be competing with centralized platforms and in speculative methods, but we will need central platforms to transfer profits to our bank accounts.

[Findingnemo]

If trades are done off-chain via a centralized database (i.e. Coinbase and Binance) then they are not real trades.  They are nothing more than accounting entries of an asset.  This is not true price discovery. 

This also allows for manipulation of the said asset (crypto) that can be deleted with the strike of a keyboard button. 

What are your thoughts on the economic impact of Centralized Exchanges? 

You are talking about trading right then why it have to be on chain? Imagine paying 50 dollars or even more for every trade and wait for few days to week? For no real reasons.

Transactions are done on chain and it is available for public and more transactions is not going to change anything.

[el kaka22]

This is 100% true, you are also now the owner of your own money neither. We do not have 100% guarantee that even a huge company like Binance can't just take our crypto and leave. We had hundreds of thousands of bitcoins stolen from mt.gox and we still didn't learn from it.

Dex is the way to go and you should own your own crypto and nobody else should keep it. With places like Binance not only we are not actually trading, we are just doing a digital moving around just like banks do, but we are also not in the control of what happens to our crypto neither, they could do anything they want to it and all we have to do is watch it. All these are the biggest troubles involved with centralized exchanges and for some reason people are not looking into this as a problem. I see it as a problem and have a little of all my coins in there, rest is in metamask and few other places.

[Darker45]

You’re basically saying one thing and then proceeded to ask another. What is the relevance of your question to what you’re claiming? Or are you simply looking for a way to promote your site here?

Anyway, I also am not a fan of centralized exchanges but there must be a reason why despite them not the preferred platforms for trades, theirs is the highest volume. Decentralized exchanges are the recommended platforms and yet they have always been dwarfed in terms of statistics by centralized exchanges.

Transactions on centralized exchanges may not be real but they’re done to make things more convenient, and they somehow represent the real thing, although I really am not a fan.

[teosanru]

If trades are done off-chain via a centralized database (i.e. Coinbase and Binance) then they are not real trades.  They are nothing more than accounting entries of an asset.  This is not true price discovery. 

This also allows for manipulation of the said asset (crypto) that can be deleted with the strike of a keyboard button. 

What are your thoughts on the economic impact of Centralized Exchanges? 

Obviously everyone knows this, but still evryone prefers to trade on centralized exchanges due to a simple reason of ease. It's much easier and Swift to trade on a centralized exchange, while for trading on a Dex, one it's slow and second it's costly too especially if you are trading on Ethereum chain. If you are just an occasional trader go for Dex which do on chain trading otherwise going with Dex won't really be profitable for you.

[Darker45]

You’re basically saying one thing and then proceeded to ask another. What is the relevance of your question to what you’re claiming? Or are you simply looking for a way to promote your site here?

Anyway, I also am not a fan of centralized exchanges but there must be a reason why despite them not the preferred platforms for trades, theirs is the highest volume. Decentralized exchanges are the recommended platforms and yet they have always been dwarfed in terms of statistics by centralized exchanges.

Transactions on centralized exchanges may not be real but they’re done to make things more convenient, and they somehow represent the real thing, although I really am not a fan.

They are the preferred platform because no one is educating themselves about what blockchain really is.  At this point, its just people throwing fiat at a coin with the best marketing campaign in hopes that they will get rich quick.  There is revolutionary power behind blockchain and its being used to create an asset bubble instead of liberating the world from the current financial system, like it was intended to.  Its now become nothing more than the "dot com" frenzy v2.  

There's probably nothing much revolutionary about blockchain aside from the fact that it could be made decentralized. That's what Bitcoin did. And that's what made Bitcoin truly revolutionary, it's decentralization. Otherwise, blockchain is just another database, a new approach of storing data. Private companies, governments, the military, thousands of other crypto projects, and many others are also using blockchain. Theirs are centralized ones. So it's not really about educating people on blockchain; it's educating people on decentralization. It's where freedom is.

[tygeade]

If trades are done off-chain via a centralized database (i.e. Coinbase and Binance) then they are not real trades.  They are nothing more than accounting entries of an asset.  This is not true price discovery. 

Before these, I remember there were enough attempts (for example Xapo wallets) to have off-chain transactions for quicker bitcoin transactions by eliminating the need of waiting for bitcoin network confirmations. I agree this way they may start issuing their own bitcoins which may turn out to be whatever. But, I guess these types of manipulations are already happening in trading as well and not just in transactions alone.

Centralized services are always a threat to its customers because we cannot be sure when or what may go turn up side down over night. When it comes about bitcoin transaction itself, I guess the possibility of degree of fraud would be too high hence we need to be more careful when availing such services.

[jrrsparkles]

If trades are done off-chain via a centralized database (i.e. Coinbase and Binance) then they are not real trades.  They are nothing more than accounting entries of an asset.  This is not true price discovery. 

Before these, I remember there were enough attempts (for example Xapo wallets) to have off-chain transactions for quicker bitcoin transactions by eliminating the need of waiting for bitcoin network confirmations. I agree this way they may start issuing their own bitcoins which may turn out to be whatever. But, I guess these types of manipulations are already happening in trading as well and not just in transactions alone.

Centralized services are always a threat to its customers because we cannot be sure when or what may go turn up side down over night. When it comes about bitcoin transaction itself, I guess the possibility of degree of fraud would be too high hence we need to be more careful when availing such services.

Trading volumes can be manipulated and even today almost all the exchanges are doing it but why we need to consider the trading volume? I don't really think it is for bitcoin because its already recognized along worldwide and  there is enough liquidity at the market price on the legit exchanges.

If centralized exchanges didn't implement the batch withdrawals then the whole network will be clogged so they are doing what is best for a trader.

[Fivestar4everMVP]

If trades are done off-chain via a centralized database (i.e. Coinbase and Binance) then they are not real trades.  They are nothing more than accounting entries of an asset.  This is not true price discovery. 

This also allows for manipulation of the said asset (crypto) that can be deleted with the strike of a keyboard button. 

What are your thoughts on the economic impact of Centralized Exchanges? 

This has always been and will continue to be as long as centralized exchanges are concerned, ever wondered by exchange fees are so low on centralized exchanges while the same exchanges fees are so high on decentralized exchanges?
Centralized exchanges have their pros and cons, and a few and the cons you've mentioned, but one of the pros is that which I stated above "transaction fees".
Imagine trading erc20 tokens on uniswap at this time, check out the fees, and also trade the same erc20 tokens on a centralized exchange like binance, check out how much fees binance charged and compare the two and tell which is more affordable for the average crypto user.

Conclusion is, In as much as we try to condemn centralized exchanges for their excesses, they still play a major role in the growth of crypto currencies.

[TimeTeller]

This has always been and will continue to be as long as centralized exchanges are concerned, ever wondered by exchange fees are so low on centralized exchanges while the same exchanges fees are so high on decentralized exchanges?
Centralized exchanges have their pros and cons, and a few and the cons you've mentioned, but one of the pros is that which I stated above "transaction fees".
Imagine trading erc20 tokens on uniswap at this time, check out the fees, and also trade the same erc20 tokens on a centralized exchange like binance, check out how much fees binance charged and compare the two and tell which is more affordable for the average crypto user.

Conclusion is, In as much as we try to condemn centralized exchanges for their excesses, they still play a major role in the growth of crypto currencies.

Very well-said. CEXs has major contribution also in terms of crypto adoption in this market.
So even if we say, some don't like using centralized exchanges, still, they are vital in the growth of this market.
Not many traders can afford to use DEX. Aside from that, there are so many alts that you can only find in CEXs.
And in addition to this, most CEXs are regulated by specific Central Banks, so at least people know where to go in case something goes awry.