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Elon Musk wants you to stop relying upon cryptocurrency exchanges, here’s why

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Tesla CEO Elon Musk is not endorsing any centralized cryptocurrency exchanges. Musk, who is a staunch supporter of cryptocurrency, wants crypto holders to take custody of their ‘keys’, and not rely upon cryptocurrency exchanges such as Robinhood or Binance.

This became clear after a recent Twitter sat between Musk and Binance CEO Changpeng Zha. The billionaire investor and founder of SpaceX raised concerns on behalf of Dogecoin holders regarding the recent DOGE problem at cryptocurrency exchange Binance.

Internet Cafes are turning into crypto mines
Montreal, Canada – 28 February 2018: Stacked cryptocurrency coins (Bitcoin, Ethereum, Litecoins)

The issue resulted in numerous erroneous dogecoin transactions with some users reporting that their accounts were frozen,

Musk asked Zhao (CZ), “What’s going on with your Doge customers?” adding that, it “Sounds shady.”

Recently, Musk had also responded to a tweet by Bill Lee, an investor in Musk’s ventures, agreeing that until the wallet keys are in the user’s possession, they should not consider the holding as “their own.”

The Tesla CEO wants people who own digital assets to own their private keys rather than letting a crypto exchange handle them. Here is why.

Types of Crypto exchanges:

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The safety of cryptocurrency depends largely on which cryptocurrency exchange you use. A cryptocurrency exchange is an online marketplace where users buy, sell, and trade cryptocurrency.

It works similar to an online brokerage, as users can deposit fiat currency, and use funds to purchase cryptocurrency online.

There are two types of crypto exchanges, centralized and decentralized, but both come with their own benefits and pitfalls in terms of safety and reliability.

If you are keen on using a centralized cryptocurrency exchange such as Binance, WazirX, CoinDCX, etc. you would be availing the services of a company that facilitates crypto to fiat transactions between two or more individuals.

Such exchanges ask their users to submit Know-Your-Customer (KYC) documents while registering on the platform.

NVIDIA GeForce RTX 30 series gaming laptops are being used for cryptocurrency mining in China
via Notebookcheck

After signing up, users can deposit money and buy or sell crypto coins. At that point, the exchange gets custody over your digital assets as well as your ‘private keys.’

It is worth noting that digital currencies such as Bitcoin, Ethereum or Dogecoin, are stored in something called a ‘wallet’, which can be accessed by using your ‘private key’, the crypto equivalent of a super-secure password, without which the crypto owner cannot access the currency.

In addition to this, centralized exchanges do not provide you a private key to the funds, but rather take access to your keys, so when you want to trade or make a transaction, the exchange authenticates it on your behalf and based on your instructions.

And when a crypto trade goes through, the exchange generally edits the balance in the accounts of the two parties to reflect the transaction on their app or website.

This means that a large amount of customer data, including private keys, is stored with these exchanges, while crypto exchanges claim that data is secure there have been cases where hackers have stolen crypto exchanges claim that the data is secure there have been cases where hackers have stolen crypto assets worth millions.

In August, for instance, a hacker stole $613 million or 46,00,74,89,000 INR in digital coins from token swapping platform Poly Network.

While the company claims hackers behind the heist have now returned nearly half of the tokens they stole, in the world of cryptocurrency, there are no guarantees.

Incidentally, decentralized exchanges (DEXs) do not store private jets of customers, making any hacking attempts ineffective. Transactions are peer-to-peer and settled between individuals.

DEXs allow users to trade cryptocurrency across wallets, transactions on DEX are executed on a blockchain such as Ethereum or Binance Smart Chain, etc. making them transparent.

Moreover, there is self-custody of funds on a DEX, as users transact using their own wallets, retaining custody of their digital assets.

Safety of ‘Keys’

A crypto wallet stores the private jets that give the user access to their cryptocurrencies, allowing one to send and receive cryptocurrencies like Bitcoin and Ethereum.

It should be noted that your coins are stored on the blockchain, and the private key is required to authorize the transfer of those coins to another person’s wallet.

The safety of wallets depends on how the user manages them. The biggest danger in cryptocurrency security is the individual user perhaps losing the private key.

Online wallets are the easiest wallet to set up and use but are also the most susceptible to cyber-attacks. One way to secure your cryptocurrency is to use an offline wallet instead of the online one.

Etherium
Frankfurt, Hesse, Germany – April 12, 2018: Cryptocurrency coin Ethereum with several stacks of coins in the background

Offline wallets, a paper or hardware wallet, can be operated wither via your desktop, mobile, or specifically designed hardware. However, when you do use an offline wallet, make sure you enable multiple levels of authentication before being able to access your crypto holdings.

Unlike centralized exchanges, decentralized exchanges do not provide a user-friendly experience, and are quite complex to operate.

It is also because in the case of decentralized exchanges users have to first connect to their crypto wallets which becomes a tedious task.

While the majority of transactions occur on centralized cryptocurrency exchanges, in terms of preventing market manipulation and less hacking risk, decentralized exchanges are the best.

Note that investing in Crypto comes with market risks as it is unregulated and is not backed by any sovereign authority.

Also read:

1 COMMENT

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