- Projects are currently charged excessively large fees to achieve listed status on centralized exchanges.
- Vitalik Buterin – Creator of Ethereum – said, “centralized exchanges exist because they serve as an interface between the fiat world and the cryptocurrencies.”
- Decentralized exchanges are picking up in popularity and liquidity is soaring.
Vitalik Buterin is the mastermind behind the Ethereum network and is often referred to as an alien by the crypto community. In his latest TechCrunch Session, he made his hatred for centralized exchanges known. Yet, in an interesting turn of events he did say that they serve a purpose. This unique insight from one of the leaders in the blockchain space helps to shine a light on centralized exchanges and why they exist in a seemingly decentralized world. Centralization is a core issue in the crypto community, especially within mining groups.
Centralized Exchanges Are Pure Evil
To quote the Ethereum creator, “I definitely hope centralized exchanges go burn in hell as much as possible.” These powerful words seem to make sense, especially when you consider that blockchain and cryptocurrencies are supposed to be decentralized, otherwise it defeats one of the main purposes of them. Some centralized exchanges make projects pay as much as $10 million to $15 million to get listed. This fee is an extortionate amount that projects are almost forced into spending to get listed. Once a project is listed there is a good chance they will make their money back with a rise in currency price, but this isn’t guaranteed.
This huge fee can often cause a project to cut back on development resources, which could eventually lead to more bugs, a weaker product, and even the death of the project. If exchanges were decentralized these fees would be nonexistent and the money projects would save could be spent on furthering their development. When you think about it, exchanges also charge an exchange fee per trade, so at the end of the day, the big guy always wins.
Centralized Exchanges Are Necessary
As much as Buterin says he hates centralized exchanges, he also says they serve a place in the trading world. They serve as an interface between the crypto world and the fiat world. Fiat currencies are inherently centralized – so in order for an exchange to accept fiat it cannot be 100% decentralized. In an ideal world, there are a handful of centralized exchanges that only deal in fiat-crypto trades – and the reverse – while the rest of trading is done through decentralized exchanges. However, centralized exchanges are at risk of data leaks and breaches of its users – potentially putting thousands of dollars and cryptos at risk.
Decentralized Exchanges Are Still Developing
Decentralized exchanges still have a long way to go in terms of liquidity and user authentication. Currently, decentralized exchanges lack the liquidity of larger centralized exchanges. This is most likely due to the fact that for people to get their hands on crypto, they need to sign up to a centralized exchange. These exchanges then also offer crypto pairs, so people never trade out of the initial exchange they start with. If centralized exchanges were limited to only offering fiat pairings, this could boost decentralized exchanges liquidity and depth of market.
In addition to lack of liquidity, decentralized exchanges also suffer from user authentication issues. If a user loses their password – or private key – all the funds in their account on that exchange are essentially lost. The very nature of decentralization is that there is no customer support line to get in touch with to reset passwords. If perhaps some form of mobile authenticator – similar to Google’s – was developed for these exchanges that allows users to reset passwords via their biometric logins, then this issue would be eradicated.
Take Note of Vitalik Buterin’s Words!
Vitalik is correct in saying that centralized exchanges are evil and charge new projects an excessive amount to get listed. However, he also makes a fair argument that they do serve a purpose and decentralized exchanges aren’t yet ready to take over the exchange world. There is much work to be done, but once key measures are put in place, decentralized exchanges have the potential to take over and dominate the crypto exchange scene.