- To safeguard their consumers and rebuild trust in cryptocurrencies, exchanges should include decentralized financing in their centralized structures.
Cryptocurrency exchanges presently rely on fear and ignorance as their primary sources of revenue. It depends on its client’s ignorance of decentralized finance (DeFi) and concerns over what might occur if their cryptocurrency investments go wrong.
Cryptocurrencies seem like obscure and risky investments to most. Unsurprisingly, concerns about losing assets in market crashes, losing wallets or security keys through carelessness, or being scammed by unscrupulous operators are prevalent. These concerns are reasonable considering the volatility of the market and the prevalence of sharks, crooks, bluffers and shysters who operate in the industry.
Those who run cryptocurrency exchanges would be negligent in presuming that the current ignorance and the fear it inspires will last indefinitely. Customers are continually expanding their knowledge and becoming significantly smarter. The next generation is becoming more knowledgeable about cryptocurrencies in various ways, including through market developments like GameFi and nonfungible tokens (NFTs).
In the world of cryptocurrency, a private key is a secret code that grants access to a digital wallet and the ability to manage its assets. These keys are crucial for securing and owning a person’s cryptocurrency assets. Without them, a person would be unable to access or transfer their funds.
Individuals have total control over their assets and can guarantee the security of their money when they have their private keys. The user’s assets are, however, effectively under the authority of a third party when they give up their private keys, such as a crypto exchange. This compromises the decentralized character of cryptocurrencies and runs counter to the notion of having your bank, not to mention it poses a security risk.
When returning security keys to consumers, there are restrictions on both the technical and educational fronts. There is almost no chance a customer will ever be able to access their assets again if they misplace their security keys.
A technological challenge also exists with exchanges. Ironic, to say the least. Their entire infrastructure is centralized. It doesn’t adhere to the principles of decentralized finance. There are several valid explanations for this.
The ecosystem for DeFi apps, Uniswap, is decentralized and charges just a small transaction fee. This, however, has a cost. Since Uniswap is unregulated, virtually anyone can develop a fraudulent token. Exchanges take great care to conduct thorough due diligence on projects to prevent situations like these.
Understandably, regular exchange users and retail investors don’t want to purchase a token that might be a scam. However, they also desire the security of knowing that their crypto can be viewed anytime. However, the cost of ownership and taking over control of the assets entails accepting the necessary responsibility, which in turn calls for the necessary level of education.
There are numerous examples of corporate behemoths that were unable to adapt and suffered. To survive, businesses must adapt to their surroundings. Customers desire complete control over their digital assets. Exchanges might welcome their destruction if they don’t embrace this trend.