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

[Alphakilo]

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.

CEX are useful mostly for those who do quick trading and want to liquidate their assets without a third party asking so many questions but using it for long term storage isn't part of its strong suit that's why it's never advised to leave funds on our CEX for long time.
There's improvement in self custody user experience presently which aims to advance DEX as a more suitable alternative since CEX are falling to  so much hack these days.

Also, CEX is why there's more adoption of crypto currencies and why the government feels they control and monitor crypto currency activities, otherwise, it is just as useless without regulations guiding it and without newbies seeking more convenient ways to use their crypto currencies.

[Queentoshi]

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?

Exchanges function in a manner similar to banks but we cannot call them banks exactly because of the function they perform in terms of making it easier for Bitcoin to be converted to other currency especially for any sort of use. I believe this is where exchanges have slotted in their relevance making them something hard and difficult to ignore in the cryptocurrency market. And also, you can use your bitcoins without exchanges if you are not interested in swapping it to another currency.

[Emeraldo]

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?

Exchanges function in a manner similar to banks but we cannot call them banks exactly because of the function they perform in terms of making it easier for Bitcoin to be converted to other currency especially for any sort of use. I believe this is where exchanges have slotted in their relevance making them something hard and difficult to ignore in the cryptocurrency market. And also, you can use your bitcoins without exchanges if you are not interested in swapping it to another currency.

We are meant to understand that we have centralized exchanges thay act like bank and they are always asking users for KYC information before they can access the full function of the exchange. Example is Binace that was recently hacked, Bybit, Crypto.com and the rest. The decentralized exchanges does not act like bank because they give their users the full or partial ability to control their funds.
The No KYC exchanges are good option that don't have any plan to control your funds because their duty is to swap your Bitcoin to stablecoin or other coins or tokens.

[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.

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.

Thank you for calling my attention to that. That was a mistake I made there, was having another thing in mind and typed another thing. I meant to say non-custodial wallet but wrongly said Dex. Exchange is an exchange regardless of wether it's centralized or decentralized and keeping our coins in an exchange for long isn't a good practice.

Your last paragraph, captures what I intended to say.

[PrivacyG]

You do not 'depend' on centralized, custodial Exchanges.  There is Bisq.  There is Haveno.  There are more or less complicated ways to do Atomic Swaps.  There are people you can trade with on the Internet, with Escrow or not.  We do not depend on any body, you have to see which way works best for you and run with it.

[OcTradism]

You do not 'depend' on centralized, custodial Exchanges.  There is Bisq.  There is Haveno.  There are more or less complicated ways to do Atomic Swaps.  There are people you can trade with on the Internet, with Escrow or not.  We do not depend on any body, you have to see which way works best for you and run with it.

There are available ways to trade without centralized exchanges, and without AML & KYC but there is no way to escape from the governments and their systems which are able to trace financial activities of citizens.

Trade on platforms without KYC is good but even so, if your trades are not Bitcoin to other cryptocurrencies, but to fiat currency in bank transfers, banks and government in your nation will have data about your bank transaction details. It will create potential risk that your bank accounts and transaction details will be used by government and tax authority against you.

I believe it is really hard to avoid tax issues if trades are by bank transfers.

[Tamaperdana]

Snip

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, crypto exchanges are clearly a good thing for the crypto world, including Bitcoin. I'm convinced that if the major crypto exchanges that exist today hadn't existed, Bitcoin and crypto wouldn't be as popular as they are today. It's undeniable that exchanges do a lot of promotion, directly distributing Bitcoin to many people. So, that's still quite positive, in my opinion. However, it's true that centralized crypto exchanges can sometimes be hacked by criminals. So, perhaps that's one of their weaknesses, and yes, behind every great benefit comes a significant risk. So, right now, I'm only looking at the positive side. While it's true that Satoshi created Bitcoin to be a currency without intermediaries, his plan may not have been fully implemented yet, but Bitcoin has still benefited many people. So, I think Satoshi would still be happy with this situation.

[d5000]

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?

One issue when dealing with fiat <-> BTC exchanges is trust (For crypto <-> crypto exchanges, the problem has been solved).

Yes, Bisq exists, but if you use such an exchange, your counterparty can in theory scam you. Either they could try to convince the escrower that you (and not them) were the dishonest part of the exchange, or they could sell your data to thieves and other dubious people, threaten to doxx you etc. . This doesn't happen very frequently, but it is understandable that people are afraid of this, and thus they chose centralized exchanges. They may be hacked eventually, but people trust a business more than a random internet citizen.

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

Interesting Are you trying to sell crypto services of a bank?

Well in several countries this already exists. One of the biggest European banks Société Générale has even an own stablecoin system.

So that's nothing new.

But banks ... can also be hacked. One example is JP Morgan Chase, which was hacked in 2014, losing customer data and about 100 million USD.

[Sticky Bomb]

. Segwit made it easier though but still the fees are not worth using as cash.

This is not true judging from how low the fees have become for a longtime now, it's far more economical when you are sending money across regions or countries and it's faster as well compared to using a Bank. It's even cheaper if you use a wallet that allows you to manually adjust the fee rate to medium priority fee of 3 Sat/VB and get your transaction confirmed in less than 30 minutes. Not using it as cash alternative is more on country regulation because we've LN for even cheaper and faster BTC tx.

Some people only use exchanges to liquidate their coins to fiat through P2P and this is because DEX platforms experience low trading volume. I'm against storing your coins in the exchange, aside the hacks, the coins you've there isn't actually yours until you have it in your self-custody wallets.

[greysonz]

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.

It all depends on what you're trying to achieve. Banks are highly centralized organizations that see you as a client and are closely connected to the government and internal financial and tax authorities. But banks haven't failed or gone bankrupt for a long time; they're stable. They can freeze your deposits if they believe you're guilty of something (though you might actually be innocent, but you can't prove it). In crypto, it's the opposite, although CEX is a pretty bad way to hold and accumulate assets there. Yes, Binance has recovered, but CEX is also regulated and can freeze your funds just like banks.

[TheUltraElite]

Exchanges are there to convert crypto <> crypto or crypto <> fiat not as middlemen to look after whom and what you are sending. Hence the role or "bank like institution" does not seem to come in the equation.

Banks are indeed acting as middlemen and you cannot avoid their oversight. However exchanges can be avoided completely.

If you need to send crypto to someone, you just need their public address and sent it from your wallet.

[Localhostspeed]

We are meant to understand that we have centralized exchanges thay act like bank and they are always asking users for KYC information before they can access the full function of the exchange. Example is Binace that was recently hacked, Bybit, Crypto.com and the rest. The decentralized exchanges does not act like bank because they give their users the full or partial ability to control their funds.
The No KYC exchanges are good option that don't have any plan to control your funds because their duty is to swap your Bitcoin to stablecoin or other coins or tokens.

There are some people that regulations doesn't allow them to use exchanges that are not licensed talk more of not having kyc. If you are from that region, you must have to use a centralized exchange approved by the country before you can be able to trade. Some countries even mandate their people to declare the exchange they use and amount theh traded but after buying or selling, you don't have to use the exchanges to keep your coins, you can withdraw them to external wallet.

We don't have to depend on exchanges but if you want adoption, expect it from different angles. The centralized exchanges are one of the ways Bitcoin exchange get adopted and as bad as they do operated, they have the largest user base. There is no decentralized exchange that is so big that comes close even the top 10 centralized exchanges. What these people need is to always take their money out of the exchanges when they are done using it.

[Fiasem20]

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.

Depending on exchanges can be for various purposes,most people their purposes of depending on exchanges are to sell,buy or trade their bitcoin while other view the exchange as a platform to hold their bitcoin for the long term.No doubt,we all know exchanges are centralized platforms and transactions are verified by middlemen but to an extent exchanges have contributed to the adoption of bitcoin because of it’s liquidity and convenience.So the problem with some bitcoiners is the fact that they depend on exchanges in a wrong way by holding their coins for the long term,we all heard how binance was hacked recently and those that trusted their coins in that platform might experience the negative outcome of trusting their coins in a centralized platform.

[Uhwuchukwu53]

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.

Depending on exchanges can be for various purposes,most people their purposes of depending on exchanges are to sell,buy or trade their bitcoin while other view the exchange as a platform to hold their bitcoin for the long term.No doubt,we all know exchanges are centralized platforms and transactions are verified by middlemen but to an extent exchanges have contributed to the adoption of bitcoin because of it’s liquidity and convenience.So the problem with some bitcoiners is the fact that they depend on exchanges in a wrong way by holding their coins for the long term,we all heard how binance was hacked recently and those that trusted their coins in that platform might experience the negative outcome of trusting their coins in a centralized platform.

I will agree with this facts, that many who do not withdraw or move out their holding or asset in exchange is using them for trading and will not have time to be moving their asset from time to time to exchange when they needed it daily to trade else would have preferred self custodian in securing their asset than exchange, long time holder will not risk holding it asset in exchange that is too Open for everyone as market place vulnerable to any attacks like the past and recent happening in exchange which is not new and investor will not even be ignorant to such exposure in an exchange as danger in keeping asset not being self custodian.

[SquirrelJulietGarden]

I will agree with this facts, that many who do not withdraw or move out their holding or asset in exchange is using them for trading and will not have time to be moving their asset from time to time to exchange when they needed it daily to trade else would have preferred self custodian in securing their asset than exchange, long time holder will not risk holding it asset in exchange that is too Open for everyone as market place vulnerable to any attacks like the past and recent happening in exchange which is not new and investor will not even be ignorant to such exposure in an exchange as danger in keeping asset not being self custodian.

Many exchanges died (Exchange graveyard).
It happened since many years ago but after FTX and Terra dead spirals in a same year, theymos published this Reminder: do not keep your money in online accounts.

It's an important reminder but it's not the first time in Bitcoin and cryptocurrency communities, such reminders were made.

Years after that, we have to return to it after latest hacks on exchanges like Bitget and Binance but I am surely that similar reminders will appear in the future. Because centralized exchange industry is here to stay, and many people will continue to use CEX and store funds there.

[MisFoxie]

Exchanges were created for people's convenience. Before creating exchanges they must have noticed some problems faced by Bitcoin users and they built exchanges by solving these problems. For example there was no good platform for buying and selling, and people couldn't buy huge amounts whenever they wanted, people couldn't instantly buy or sell their Bitcoin.

At the beginning users might have deposited just to sell but people started trusting them so much that they forgot that keeping funds in an exchange means the ownership of those funds can change at any time.