Can Bitcoin remain decentralized if most users rely on exchanges, from a newbie

[aylabadia05]

Technically, Bitcoin remains decentralized, but its usefulness becomes less decentralized if you entrust or store Bitcoin in a centralized exchange wallet, which is where the term "Not your keys, not your coins" comes into play. The Bitcoin network (which verifies transactions) remains decentralized, no central authority, bank, or government can control the thousands of nodes (computers) running Bitcoin around the world.
Centralized exchanges like Binance or others are simply "participants" on this network.
Although most users store Bitcoin on exchanges, the Bitcoin consensus rules (protocol) remain unchanged. If you truly want to enjoy the benefits of decentralization, then store Bitcoin in a non-custodial wallet or one where you can control the private key. Exchanges are only for buying, not for storing assets, especially long-term. However, if you want to store Bitcoin in an exchange wallet for the sake of facilitating transactions, then store it in an amount that you can afford to risk.

An exchange is not a wallet. Using it as a place to store Bitcoin is clearly a mistake. We need freedom, and that means we’re the ones in control of the Bitcoin we own.
Its sole purpose is to buy and sell on the exchange—it’s not meant for storage, even though they tout the convenience of keeping it in an exchange wallet.
I might agree with you regarding the amount stored, provided you’re prepared for the risks involved. Then, it’s simply a matter of buying and selling again on the spot market.

[lionheart78]

We should be clear that centralized exchanges are not part of Bitcoin. Whether it is centralized or decentralized does not affect the core characteristics of Bitcoin.  Even if all users use the centralized exchanges, Bitcoin stays decentralized unless the core program of Bitcoin is modified to be centralized, where a single point of authority is given to a group or company.

Exchanges are external platform that operates independently from Bitcoin, they integrate themselves to take advantage of the opportunity, but has no power to turn Bitcoin into a centralized entity.  They can only have authority inside their platform, but never have power to change the Bitcoin rules.

[legiteum]

Yes it is. Because someone or a large percentage are holding Bitcoin or Exchange o prefer to do all receiving and sending out  through exchange doesn't   change what Bitcoin was initially built on or the purpose entirely.  Most people don't understand that the third party they are using are usually  holding all their reserve in the right way it should. All they do is make their users convenient with  what they are used to.  

I think when people start realising so much they will adopt the full decentralized part even though more bodies keep rising every day to cripple it. But,they can't eliminate it .

Sorry, but that's just delusional. The trend is going away from decentralization, not towards it.

And what possible benefit does somebody get by keeping their own keys, except to lose them or get killed because of them?

What Bitcoin was when it started has absolutely nothing in common with what Bitcoin is today.

[Cookdata]

OP I think you are mixing things together. There is differences between custodial and decentralization. Bitcoin isn't control by the exchanges, whether the exchange is a decentralized or centralized one, they have no business with the Bitcoin network. It's the nodes and miners that has say in the Bitcoin network and I can say the nodes are and miners are scattered around the globe, there is no control over this and will remain like this, you can check stats of node and miners to confirm.

What you are talking about is custody of wallets, the centralized exchanges are platform for people to buy and sell Bitcoin and not to hold coins but overtime, people find exchange convenient to keep their coins, this has given a lot user comfort than been their own custody. As much as this is not good practically, there are people that will not use self custody but that's their problem, it's their responsibility to worry the day the exchange is hacked or loss their coin, it's not like their coins are insured, they are going back to nothing.

[AmoreJaz]

OP I think you are mixing things together. There is differences between custodial and decentralization. Bitcoin isn't control by the exchanges, whether the exchange is a decentralized or centralized one, they have no business with the Bitcoin network. It's the nodes and miners that has say in the Bitcoin network and I can say the nodes are and miners are scattered around the globe, there is no control over this and will remain like this, you can check stats of node and miners to confirm.

What you are talking about is custody of wallets, the centralized exchanges are platform for people to buy and sell Bitcoin and not to hold coins but overtime, people find exchange convenient to keep their coins, this has given a lot user comfort than been their own custody. As much as this is not good practically, there are people that will not use self custody but that's their problem, it's their responsibility to worry the day the exchange is hacked or loss their coin, it's not like their coins are insured, they are going back to nothing.

No single entity is controlling btc up until now. Hence, it is decentralized. The reason why no one can manipulate the market single handedly. So even if there are so many users who are relying on centralized exchanges, still it is only a small portion of btc.

[ThemePen]

Although, now, ETFs and some other central markets allow people to keep their Bitcoin, system itself is spread out since hidden technology is run by thousands of single points and miners spread across world. Although some very big groups now own about 15 percent of all Bitcoin but number of people running their own points continues to grow, making it impossible to change rules or later control code. Real worth of Bitcoin, as I see it, is always having way out, which is not possible with normal bank, you can move your money to your own digital pouch at any time, if you do not trust market. Even if handy market seems to many users easier, it is only for show that they are only guests in system that is still owned and proven by people who own keys themselves.

[Rubuchi]

An exchange is not a wallet. Using it as a place to store Bitcoin is clearly a mistake. We need freedom, and that means we’re the ones in control of the Bitcoin we own.
Its sole purpose is to buy and sell on the exchange—it’s not meant for storage, even though they tout the convenience of keeping it in an exchange wallet.
I might agree with you regarding the amount stored, provided you’re prepared for the risks involved. Then, it’s simply a matter of buying and selling again on the spot market.

i see it in two different ways. If my intention is to build my financial portfolio in the cryptocurrency space, I won’t be looking at storing my funds in any exchanges despite there are exchanges I trust so well that I don’t expect and will never believe they will just run away with my money but prevention they say is better than cure so if you are doing something as a smart person you have to also take into account your risk assessment and management. If you see much risks attached to your portfolio then you have to do what others are doing to protect themselves the best especially if such is the most recommended in the industry.

[BlackBoss_]

i see it in two different ways. If my intention is to build my financial portfolio in the cryptocurrency space, I won’t be looking at storing my funds in any exchanges despite there are exchanges I trust so well that I don’t expect and will never believe they will just run away with my money but prevention they say is better than cure so if you are doing something as a smart person you have to also take into account your risk assessment and management. If you see much risks attached to your portfolio then you have to do what others are doing to protect themselves the best especially if such is the most recommended in the industry.

Centralized exchanges, online websites are not places for storing your cryptocurrency as your investment portfolio. They are never such recommended safe ways to hold your coins so with investment holding, don't store it on any centralized exchange.

You can trust any centralized exchanges, but only trust them with security, and trading only. While let me emphasize one more time, with holding especially long term holding, don't trust any exchange.

Which you must trust is a good wallet (open source, non custodial) and store your coins in such wallets. Best if you can buy a hardware wallet or set up an airgap wallet for storing your coins a long time.

[Z-tight]

And what possible benefit does somebody get by keeping their own keys, except to lose them or get killed because of them?

That's quite the logic. It would be interesting to see the statistics of people who get killed because they are their own bank. How people even decide to hold their coins or what they do with it has nothing to do with BTC's decentralization. Isn't it simple enough that no central authority in control and no single point of failure makes it decentralized, and what people do or do not do with their coins cannot change the protocol.

What Bitcoin was when it started has absolutely nothing in common with what Bitcoin is today.

What changed about the network or the protocol in itself?

[macson]

This question has been raised before, and the answer is still the same Bitcoin will remain decentralized. Its decentralization doesn't depend on on whether people store their Bitcoin on exchanges --- it's rooted in the technology itself.

Decentralization is a characteristic of Bitcoin, not something that exchanges have control over. So no matter how many people use exchanges, it doesn't touch the fundamental structure of Bitcoin, which was designed to be decentralized by Satoshi from the very beginning.

[legiteum]

What changed about the network or the protocol in itself?

Like asking what has changed about the TCP/IP protocol since 1994 and concluding the internet is the same as it was then.

[bitbollo]

I am considering also another point ... the worst part that could be related to "centralization of bitcoin".
Protocol by itself can't be changed radically, just updated.
The network by itself would always be decentralized due a multitude of a reason. You can't expect the same with altcoins.
We can even expect that distribution of bitcoin would be fair as planned. And the most has been distributed once coin was with a very low value.
Nice reward you will say for a tester but imagine how many shitcoins are crashing nowadays. This was also one of the potential scenarios of bitcoin...

[aylabadia05]

<snip>

i see it in two different ways. If my intention is to build my financial portfolio in the cryptocurrency space, I won’t be looking at storing my funds in any exchanges despite there are exchanges I trust so well that I don’t expect and will never believe they will just run away with my money but prevention they say is better than cure so if you are doing something as a smart person you have to also take into account your risk assessment and management. If you see much risks attached to your portfolio then you have to do what others are doing to protect themselves the best especially if such is the most recommended in the industry.

We’ve been around for a while and probably have a bit more experience than you.
Were you involved in the crypto world when FTX went bankrupt? I’m not asking about what happened before the FTX incident.
There’s no justification for the fact that an exchange—which is clearly not a wallet but serves as a platform for buying and selling—operates this way. A wallet is where you store your assets, and ownership of those assets lies with you—it’s not just a matter of handing over a login password.

[legiteum]

We’ve been around for a while and probably have a bit more experience than you.
Were you involved in the crypto world when FTX went bankrupt? I’m not asking about what happened before the FTX incident.
There’s no justification for the fact that an exchange—which is clearly not a wallet but serves as a platform for buying and selling—operates this way. A wallet is where you store your assets, and ownership of those assets lies with you—it’s not just a matter of handing over a login password.

I've been around a long time too, and.. were you involved in the crypto world when there were daily stories of people having their crypto savings stolen from five dollar wrench attacks? I suspect you were since those attacks still happen every day.

Yes, you take a risk by using a separate entity to guard your savings. But you also take a risk in holding that money yourself (and yes, this applies to every kind of investment you can personally physically hold, not just BTC).

Most people store their money in banks etc. because they don't own guns, or if they do, they don't fancy themselves in a gun fight. Or they are afraid their money will end up lost in the laundry, or the trash, or eaten by their dog, or some other problem. Meanwhile, there are many reputable entities out there that have good reputations for not losing people's money, which is why 99% of consumers use them instead of hiding the money under their mattress. Regardless of the anecdotes like FTX*, you are statistically safer using experts to guard your money, not yourself.

(* Fun fact: all of the FTX depositors have been made whole btw [~0 victims of $5 wrench attacks have been made whole]).

[Cookdata]

An exchange is not a wallet. Using it as a place to store Bitcoin is clearly a mistake. We need freedom, and that means we’re the ones in control of the Bitcoin we own.
Its sole purpose is to buy and sell on the exchange—it’s not meant for storage, even though they tout the convenience of keeping it in an exchange wallet.
I might agree with you regarding the amount stored, provided you’re prepared for the risks involved. Then, it’s simply a matter of buying and selling again on the spot market.

i see it in two different ways. If my intention is to build my financial portfolio in the cryptocurrency space, I won’t be looking at storing my funds in any exchanges despite there are exchanges I trust so well that I don’t expect and will never believe they will just run away with my money but prevention they say is better than cure so if you are doing something as a smart person you have to also take into account your risk assessment and management. If you see much risks attached to your portfolio then you have to do what others are doing to protect themselves the best especially if such is the most recommended in the industry.

Trust is an illusion when it comes to money, it remains the same as long as there is mutual benefits from the exchange, it changes immediately there is nothing to benefit again. Centralized exchanges want you to trust them because there is so much they stand to gain from holding your coins, some of this coins are stake and earning yield, some part are lend and some part invested to other things that's why I don't buy into this exchange reserve transparency.

If an exchange is not making benefits from what they are doing, expect their worst form. When FTX collapse, there was no sign, the exchange was working very well but behind the scene worst was going on was more than what we never expected. All I'm saying, putting billions of dollars to a company they don't owned is too risky, there is more to lose than want any person can stand to gain, I might not be convenient with self custody but I will take that over any custodial service.

[Dareo]

Bitcoin's decentralization is actually at the network level, where the user is holding it is a different matter. No matter how big the exchange is they can't change the protocol or consensus this is where the real power lies but the problem is on the user side, If everyone relies on the exchange and doesn't hold their own keys then it becomes very centralized in practical terms. That means the network is free but people themselves are relying on intermediaries.