Until decentralized exchanges (at least those who do it right and aren’t only trying to benefit from the DEX label) finally get the recognition and subsequent increase in traffic, centralized exchanges will be the unfortunate gateway through which most people new to this space will be interacting with cryptocurrencies.
You will be making three kinds of sacrifices when you use centralized exchanges.
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Firstly, you need to understand that when you purchase your cryptocurrencies from a centralized exchange, or if you deposit your cryptocurrencies onto a centralized exchange, those coins are still very much under the control of that exchange, and are also subjected to their security practices.
What that exchange actually does with those coins, is not always truthfully reflected on your account. There have been multiple accounts of users not being able to withdraw their coins, CEOs of exchanges that have taken those deposits, conducted trades on other exchanges with them, in an effort to make more money, and even worse, exchanges that have gone out of business due to a large hack and loss of funds and in the aftermath it’s revealed that users deposits were poorly secured, or were spent elsewhere far before the hack even happened.
Yes, your account will read that you have such and such coins and you’re able to trade them for other coins on that same exchange, but you need to know that if you want to be able to rest easy knowing that those coins are truly yours, you will need to withdraw those coins from the exchange, and transfer them into a secure wallet of which you are in complete control. If you want to learn more about your different wallet choices, check out the links to my other helpful videos down below. I will also be doing a Ledger Nano X setup guide next week and with that will include other helpful information when dealing with hardware wallets in general.
Back in the day, 5 years ago, you could set up a Coinbase account with just your email address.
Now, nearly every centralized exchange requires your full name, address, phone number, photocopies of your government issued ID, some are even requiring the source of your income, how you acquire cryptocurrencies, and what you plan to do with them. Quite a bit more invasive and always remember, once you give that information away, if you choose to, you are placing it in the hands of someone who does not value it as much as you do because guess what, it’s not their personal information. And much like your investments, no one values your money or your personal information as much as you do. Hackers can and have broken through exchanges security layers and stolen billions of dollars worth of cryptocurrencies, but that’s not the only thing valuable for them to steal, your personal information has it’s own value to them as well and they will get it if they can.
Centralized exchanges have certain benefits like fast trades, advantageous coin pairings, and an overall ease of use.
Those who are in control of these exchanges know this and often charge a premium in the form of fees for trades and for withdrawals.
Some exchanges have aggressively increased their fees. Most recently Coinbase has done this which has resulted in basically punishing their smaller, retail investors and traders and have let their deeper pocketed customers enjoy a lower fee experience.
There are other options out there called decentralized exchanges (DEX), they have yet to develop into something that can rival the ease of use and speed that centralized exchanges offer, but if you value your investments and personal information, they are worth checking out.
I’ve done a lot of videos that cover many of these types of exchanges so if you’re interested, again I will be providing links to all of those videos down below.
