On Saturday, 4th of December, crypto trading platform Bitmart claimed that hackers have withdrawn $150 million. However, PeckSheild has estimates closer to $200 million in losses.
It is vital to understand that crypto exchanges are generally of two types – centralized and decentralized.
While centralized exchanges are custodial and store user assets in their own cold or digital wallets, decentralized exchanges are non-custodial and do not take control of the user assets. As decentralized exchanges do not store user assets, they cannot be hacked and offer a higher level of security than centralized exchanges.
The dark history of centralized crypto exchanges
Most of the cryptocurrency hacks that have taken place in the past are exclusive to centralized exchanges as they provide an easy target to hackers. A centralized exchange stores the majority of crypto assets in a single space protected using different security protocols. If these security protocols are not robust they lead to hacks and loss of millions of dollars.
Sadly, even the most popular centralized exchanges such as Binance and Bitmart have been hacked. In 2018, Binance was hacked in which the hacker stole over $40 million worth of Bitcoin from one of the largest cryptocurrency exchanges. The hacker(s) ran off with over 7,000 Bitcoin in a “large scale security breach”.
Last week, Bitmart also became a victim of hacks for a whopping $196 million. While the centralized exchange reported that it will reimburse the victims, this level of hack shouldn’t have happened in the first place.
These hacks bring forward the biggest shortcoming of centralized exchange even to this day. This is why there is a massively growing trend of people moving to decentralized exchanges, as they are much more secure.
Decentralized exchanges such as Uniswap, SphynxSwap, Milkyway, FibSwap, etc., are more secure as they are decentralized. The decentralization of the exchanges brings forward a two-fold advantage. Firstly as the exchange is decentralized, no single entity can control the exchange. The second and the most important benefit is that these exchanges do not take control of the user assets.
Decentralized exchanges are non-custodial exchanges where the trader retains complete control over their assets, which are stored in their private crypto wallets protected using encrypted keys. This distribution of assets makes decentralized exchanges a lot safer than centralized exchanges.
Decentralized exchanges are restoring the faith of the crypto users by creating a safe, secure, and decentralized platform for traders to buy, sell, swap and trade their digital assets. Security breaches like the one that happened this past week only fuel the popularity of these decentralized exchanges, as people become more sceptical of centralized platforms and more educated and technically apt.