Learn to Use Decentralized Exchanges
Decentralized exchanges are the future. They eliminate counterparty risk and ensure you remain in complete control of your money. Counterparty risk is where you own a claim on a promise to repay. When you deposit your funds into Coinbase, Bittrex or other centralized exchange the individual who deposited is accepting counterparty risk. It doesn’t matter that you own the deposited funds, you rely on those companies to pay up when you put in a request to withdraw funds. While decentralized exchanges are slow today, they eliminate the counterparty risk and allow for an increased level of privacy for all users. As we have all learned with Equifax most recently is that there is no safe database and if you give up your identity information it will eventually wind up stolen and for sale.
MtGox, Bitfinex and even Bitstamp are examples of exchanges that have been hacked. On one end you have MtGox who lost all of their customer’s funds, Bitfiex who socialized the losses across all accounts or Bitstamp who took the loss out of their profits to ensure their customers remained whole. There are benefits to centralized exchanges such as high-frequency trades, but for passive investors who invest and hold (the extreme majority of people) the risk for the speed advantage is unnecessary. In addition, centralized exchanges are honeypots meaning they are a target for attackers. They are under constant attack because if the attacker is successful they have a huge payout. Attacks go after easy or known big targets so by doing the opposite you increase your security and boost your preparedness for the future.
Bitshares, Bisq and EtherDelta are examples of the most popular decentralized exchanges. Each of these exchanges offers a unique perspective on how to tackle a decentralized exchange.
Centralized exchanges thrive because, conversion to and from government currencies is controlled, this creates friction when converting in and out of the system. Centralized exchanges need to comply with KYC and AML laws and they are excellent at converting government currency into cryptocurrency. However, privacy suffers as a result. Typically individuals must give up their identification, passport, social security number etc. Combine this the honeypot scenario described above and not only do you have a honeypot for cryptocurrency but also identity theft.
Decentralized exchanges will not solve the friction of converting government currencies into cryptocurrencies, but applications such as BisQ still make it possible and those who are patient and care about their privacy can get into and out of cryptocurrency without putting their identity at risk. Once you are into the cryptocurrency realm you can use Bitshares and EtherDelta to purchase other cryptocurrencies while retaining your privacy.
As we have seen with the Equifax hack, giving up your personal information leaves you vulnerable to attack. We know that hundreds of millions of identities are for sale online. This is only possible because the old culture is failing to adapt for the future. The social security system constructed in the 1930s is extremely fragile so be proactive in your security. What are you doing today to protect your identity? Learn today to start using decentralized exchanges to secure your future.