Bitcoin Was Created to Remove Middlemen, So Why Do We Still Depend on Exchanges?

[Saif Khan officials]

Hello everyone,

Something has been on my mind recently, especially after hearing about security incidents involving crypto exchanges.

When Satoshi Nakamoto introduced Bitcoin, one of the main ideas was peer-to-peer transactions without banks or other middlemen. The goal was to give people more control over their own money.

But look at the crypto industry today. Most people depend on centralized exchanges to buy, sell, and store their cryptocurrencies.

This raises an important question in my mind: What is the real difference between keeping money in a bank and keeping it on a centralized crypto exchange?

Banks provide security systems and certain protections for customers' funds, while crypto exchanges have repeatedly faced hacks and security breaches.

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

In my opinion, the crypto industry needs more secure and trustworthy infrastructure if it wants to achieve Satoshi's original vision.

What do experienced traders and Bitcoin users think? Are centralized exchanges moving crypto away from its original purpose, or are they simply a necessary part of its growth?

I'd like to hear your thoughts.

[Catenaccio]

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

What do experienced traders and Bitcoin users think? Are centralized exchanges moving crypto away from its original purpose, or are they simply a necessary part of its growth?

With Bitcoin blockchain and non custodial wallets, you can fully control your wallets, your bitcoins and free to set up and broadcast your Bitcoin transactions. Miners will confirm your transactions and Bitcoin nodes will relay it to other nodes on the network. No censorship, no reversibility, no centralized freeze of your fund, it's how Bitcoin blockchain serves you.

However, if you want to use your bitcoin, you will need to spend it by a trade deal with another person. Most of time, your trade partners are strangers on the Internet, and you can not trust them so it raises need of having Escrow services or exchanges. With such online and centralized platforms, your bitcoins are at risk but if you plan to trade and withdraw money quickly, it reduces risk for you.

Reminder: do not keep your money in online accounts.

[tsaroz]

We have discussed it extensively here. Satoshi imagined bitcoin as electronic cash but with the manipulative increase of the price, the fees became too large to carry on day to day transactions and the blockchain became too slow for rapid confirmations. Segwit made it easier though but still the fees are not worth using as cash.

There have been efforts like lightning but it hasn't got much interest as most people consider bitcoin to be an investment rather than a payment method.
We can't be sure what satoshi's true intention was but we have moved away from the concept of bitcoin being an alternative to cash and have moved towards it being a Intangible monetary commodity.

[Free Market Capitalist]

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

Because with centralized platforms, people expected the price to rise significantly, and that was true—at least at first. You find much more liquidity on CEXs than on DEXs. But in recent years, Bitcoin ETFs and treasury companies have also entered the market, and while their high demand was supposed to send the price through the roof, what actually happened was that Bitcoin’s returns turned out to be rather poor.

[m2017]

When Satoshi Nakamoto introduced Bitcoin, one of the main ideas was peer-to-peer transactions without banks or other middlemen. The goal was to give people more control over their own money.

The problem, however, is that not everyone is capable of managing their own money. Some are in a rush to get rid of this "burden" as quickly as possible and shift it onto someone else's shoulders.

But look at the crypto industry today. Most people depend on centralized exchanges to buy, sell, and store their cryptocurrencies.

Yes, that’s correct. I’ve already pointed this out in one of my previous posts: in the current landscape, P2P has evolved into P2E2P (where "E" stands for an intermediary, such as an exchange).

This raises an important question in my mind: What is the real difference between keeping money in a bank and keeping it on a centralized crypto exchange?

In principle, there is no difference at all.

Banks provide security systems and certain protections for customers' funds, while crypto exchanges have repeatedly faced hacks and security breaches.

Well, exchanges, especially the large ones, also offer similar guarantees (though these are not yet established at the legislative level).

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

Satoshi would surely be just as bewildered by what’s going on.

In my opinion, the crypto industry needs more secure and trustworthy infrastructure if it wants to achieve Satoshi's original vision.

This is already in place: decentralization.

What do experienced traders and Bitcoin users think? Are centralized exchanges moving crypto away from its original purpose, or are they simply a necessary part of its growth?

If exchanges exist, there is likely a need for them (i.e., a social demand from users).

Ok, let’s imagine that we "need to remove exchanges" from between users. What alternatives can you propose? If the BTC-community has moved away from the original P2P model, it is highly unlikely that they will revert to it (would that even be a regression?).

[NotATether]

The answer is to stop using large exchanges that ask for KYC.

Use private exchange sites that don't demand KYC, don't risk score your coins, and have escrow deposited with several members and forums.

Most of whom are listed on BitMixList.org by the way

(disclaimer - it is my project, as you can see in my profile picture)

[Kelward]

Whether you use a centralized exchange for your Bitcoin transactions or not it doesn't change anything about Bitcoin, it remains decentralized with limited supply, if you priotize none custodial wallets over centralized exchanges you will have your privacy and freedom. Although I understand your concern because a lot of Bitcoin holders are using CEX for their p2p transactions, it shows that they priotize convenience and security of their p2p transactions over privacy, exchanges have become a necessity as middlemen to avoid who you're doing p2p transactions with to scam you.

If you trust everybody that you're doing p2p transactions with you wouldn't need an exchange as a middleman, so it's quite simple you can either do p2p with a second party through your none custodial wallet or you can use an exchange to stand as middleman so you don't get scammed, it's as simple as that. For your own safety it is better to leave your Bitcoin in none custodial wallets, only use an exchange when it is absolutely necessary because you don't hold the keys of your coins in an exchange.

[Marvelockg]

When Satoshi Nakamoto introduced Bitcoin, one of the main ideas was peer-to-peer transactions without banks or other middlemen. The goal was to give people more control over their own money.

And even till this moment, the goal has not changed, transactions are primarily design to be implemented without a need for a third party or a middle man like it is the case with the use of crypto exchange. exchange became necessary because of the fact that fees seems much when carrying out conventional p2p. it is now left for a user to decide whether he should go after high fees or to still use an exchange when the need arise. the use of an exchange is not bad, primarily. what makes it an issue is when you start storing your asset in it.

It was never going to be possible that satoshi was going to see everything regarding the future of bitcoin especially s it elates to bitcoin being completely decentralized. the option is always there for user to decide whether he wants to use centralized exchange or stick to normal p2p regardless of the issues of high fees.

[RGBTC]

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

Reasons for dependency:

• Legality: Not all countries permit the use of Bitcoin for transactions involving goods or services.
• Liquidity: Exchanges serve as on/off-ramps and have access to abundant local money liquidity
• Complexity: Many users are unfamiliar with the technical aspects.

We haven’t even touched upon how centralized platforms can "brainwash" users through advertisements promising profits and safe, leading you to use them even when you don’t actually need to.

[5W-KILO]

Bitcoin never promised to remove where to buy and sell your Bitcoin as your own meaning of middleman.
The middleman that Bitcoin got rid of are those who want to keep your Bitcoin for you.

Self custody is the price that Bitcoin gives, it's people who intentionally want to keep their Bitcoin on exchanges because they can't handle the self custody idea, they likes the Bank type operation.

If you want to take this further then here is the answer.
Stop buying Bitcoin on any exchange, start using P2P platfroms to buy and sell your Bitcoin.

You can consider mining your own Bitcoin too, from the BTC mining pool straight into your crypto wallet.

[Nmjut]

Hello everyone,

Something has been on my mind recently, especially after hearing about security incidents involving crypto exchanges.

When Satoshi Nakamoto introduced Bitcoin, one of the main ideas was peer-to-peer transactions without banks or other middlemen. The goal was to give people more control over their own money.

But look at the crypto industry today. Most people depend on centralized exchanges to buy, sell, and store their cryptocurrencies.

This raises an important question in my mind: What is the real difference between keeping money in a bank and keeping it on a centralized crypto exchange?

Banks provide security systems and certain protections for customers' funds, while crypto exchanges have repeatedly faced hacks and security breaches.

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

In my opinion, the crypto industry needs more secure and trustworthy infrastructure if it wants to achieve Satoshi's original vision.

What do experienced traders and Bitcoin users think? Are centralized exchanges moving crypto away from its original purpose, or are they simply a necessary part of its growth?

I'd like to hear your thoughts.

In my opinion the Satoshi's aim is closer to DEXs with minimal middleman intervention, but in the contemporary times Bitcoin has also become a dependent digital coin under the control of CEXs, which is totally contradictory to Satoshi's view. There is quite possibilities that the digital coin will under the centralized restrictions in future...

[Junii]

I'd like to hear your thoughts.

Bro the purpose of centralized exchanges is just buying and selling and it also makes bitcoin accessible to users because for majority people managing wallets and private keys and  other stuff is challenging and some times high fees as well. So i think if someone has issue with the centralized exchanges he has to put his fund in a wallet because buying and selling and storing assets for long term is a different thing also exchange is just a tool not a treasure to put all our assets there as few days ago you see the binance hack.

[aoluain]

If Bitcoin was created to reduce dependence on traditional financial institutions, why have we built another system where people depend so heavily on centralized platforms?

Because Bitcoin has become much more than Satoshi's initial vision - A Peer-to-Peer Electronic Cash System

In a lot/most cases Bitcoin is exchanged to and from FIAT rather than point of sale or otherwise purchases
and that is done through centralised exchanges, anonymously through KYC free platforms, in wallet exchange
or person-to-person.

IMO its the "big brands" like Coinbase, Binance and Kraken etc. who attract the most users in the name of
convenience and easy trading etc.

[Antidote47k]

With Bitcoin blockchain and non custodial wallets, you can fully control your wallets, your bitcoins and free to set up and broadcast your Bitcoin transactions. Miners will confirm your transactions and Bitcoin nodes will relay it to other nodes on the network. No censorship, no reversibility, no centralized freeze of your fund, it's how Bitcoin blockchain serves you.

However, if you want to use your bitcoin, you will need to spend it by a trade deal with another person. Most of time, your trade partners are strangers on the Internet, and you can not trust them so it raises need of having Escrow services or exchanges. With such online and centralized platforms, your bitcoins are at risk but if you plan to trade and withdraw money quickly, it reduces risk for you.

Reminder: do not keep your money in online accounts.

I think this basically sums it up, bitcoin essentially removes the need for trusted intermediaries when settling transactions but the protocol does not cover the need for trust when people exchange different forms of money and this is where exchange and escrow comes in, they address the problems the protocol wasn’t designed to solve. While bitcoin can verify that transactions satisfies it rules, it doesn't verify that someone has fulfilled an external promise to send money to your account.

You can look at this way, bitcoin doesn’t need an intermediary to verify that your transaction meets the network consensus, at the same time, it doesn’t need permission from an exchange to broadcast a valid transaction where as when your selling your bitcoin for fiat, you would need to trust the other party to fulfill their end of the deal hence the need for escrows and exchangers to reduce counterparty risk. You may accept exchange custody temporarily because it simplifies the settlement.

[BlackHatCoiner]

Bitcoin was created as a solution to make money via the internet available without third parties. It was not created to stop trade between currencies.

Exchanges are useful for trade. I may need a fiat currency, and another person may need BTC. So we use the exchange to trade. This need gave birth to a new kind of banking, which is DeFi. Simple as that.

[Donneski]

Bitcoin doesn't need centralized exchanges to function, people only use it to buy, sell and convert BTC and other crypto coins to fiat with ease. They use it for convenience but are also aware that the moment your coins leaves your Dex wallet to Vex wallet, it's no longer in your full custody so it's more usable when you aren't leaving your BTC in there for long after, it's the same as leaving it in the bank which defies the self-custody and full control that Bitcoin was created for.

[Kelvinid]

I believe those who enter crypto have known about this already, its just that they aren't ready doing so.

They are not fully confident to rely on their own and take their own full custody to their coins. So instead of acting responsibly and limiting the risk of losing, they chose to accept the risk because the risk of getting hacked anyway is sometimes unavoidable.

This is no longer knowing about the real motive of Satoshi, but more on doing what's more convenient and less stress for them even if it means increasing the risk of losing their coins.

[Japinat]

Those who are active traders might leave some funds to their trusted exchange, but it does not mean that they rely completely on an exchange to save and store their coins. They already know the future consequences of trusting too much centralized exchange so why still take the risk.

But we can't stop these newbies in crypto from not trusting a centralized exchange because they still lack the knowledge and confidence to create their own wallet instead and be responsible enough to manage their coins. But they'll eventually learn, either the hard way or maybe they just need more time and exposure in the market and learn so much from others experiences.

[Joy_learns_crypto]

Bitcoin doesn't need centralized exchanges to function, people only use it to buy, sell and convert BTC and other crypto coins to fiat with ease. They use it for convenience but are also aware that the moment your coins leaves your Dex wallet to Vex wallet, it's no longer in your full custody so it's more usable when you aren't leaving your BTC in there for long after, it's the same as leaving it in the bank which defies the self-custody and full control that Bitcoin was created for.

Dex is decentralized exchange, your Bitcoin on a Dex decentralized exchange wallet is not completely yours, Dex can be hacked, there can be security breach just like what happens with centralized exchange Cex and your Bitcoin there can be stolen.
Dex is decentralized so it it more anonymous and private than centralized exchange.

Noncustodial wallet are you true wallet, you have the full control of that wallet, don't keep your Bitcoin on any exchange they have their uses but not for saving your Bitcoin.

[Josefjix]

Just a simple wild reasons,  many users are familiar with signing up with mail, doing kyc on a platform and deposit money to interact on a platform, those were the olden days era of getting onboard with a platform and so cex offers that.

Many users are confused about dex not having any of these, just seed phrase to be kept secret that's all, that's strange to many users so they stick to what they know earlier to keep their funds for them.

It's easier buying and selling crypto from Fiat to crypto, vice versa on cex than it is through Dex. Although p2p to Fiat happens on dex but it's not rare especially those leaving in the country where crypto is not allowed, where acquiring crypto must be through p2p, and cex offers that mostly.