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The current business model used by cryptocurrency exchanges relies on ignorance and fear.
It relies on customers who know little about decentralized finance (DeFi) And the fear of what will happen if something goes wrong with investing in cryptocurrencies.
To most people, cryptocurrencies seem like an obscure and risky investment, but unsurprisingly, they can easily lose assets in a market crash, inadvertently lose wallets or security keys, or be maliciously stolen. Concerns about being deceived by operators are widespread. These concerns are valid given the market volatility and prevalence of sharks, scammers, bluffers and shysters operating in the industry.
In theory, exchanges exist to alleviate these concerns. They exist to reduce risk for the average retail investor who is given a safety mechanism to prevent losing their savings. In the process, I was able to create a huge fortune.
But it would be negligent for those who run cryptocurrency exchanges to assume that the current level of ignorance and the fear it creates will continue forever. Customers are always learning more. they are much smarter. The next generation is learning about crypto in many ways, including market trends like GameFi and non-fungible tokens (NFTs). As adoption spreads, so does the average customer’s knowledge. This makes it less dependent on exchanges.
Related: FTX Shows Why Banks Should Take Over Cryptocurrencies
Many customers will also be surprised by the story of the infamous crypto entrepreneur Sam Bankman Freed, the mastermind behind the implosion of FTX. Given this, exchanges don’t look like much of a safe and secure option after all. If it is likely and you want to avoid the risk of the exchange becoming completely decoupled, you should accept this.
That is why exchanges should lean towards this trend, not against it, if they want to survive and avoid their own downfall. To do this, you must empower your customer and trust him with his money and security his key.
I’m not saying this is easy or easy. Of course, there are technical and educational constraints when returning security keys to customers. If a customer loses their security key, chances of regaining access to their assets are close to zero.
Exchanges also have technical challenges. Ironically, their entire infrastructure is centralized. It’s not entirely in line with the spirit of decentralized finance. There are several good reasons for this.
Uniswap, an ecosystem of DeFi apps, is decentralized and charges a small fee per transaction. However, this comes at a price. Uniswap is unregulated, so most people can create fraud tokens to perform laghi pulls. This is why exchanges do their best due diligence on their projects. This is to prevent this sort of thing from happening.
Related: What to expect from cryptocurrencies in the year after FTX
However, there are ways centralized exchanges can implement a more decentralized approach without falling into some pitfalls. You can create a hybrid of sorts to get the best of both worlds.
Retail investors and average exchange users are understandably reluctant to buy tokens that may lower the threshold. But they also want the security of always having access to cryptocurrencies. But the price of ownership and control of assets means assuming necessary responsibilities, and that requires a necessary level of education. Exchanges looking into the future of crypto need to understand this.
Importantly, it should be understood that the sooner customers are educated about cryptocurrencies, the sooner they will find a direct path to complete decentralization. Therefore, I call on exchanges to promote decentralized methods by creating hybrid systems that protect their customers and their brands.
History is littered with examples of big companies failing to adapt and paying the price. Blockbuster was an arrogant giant that never thought streaming would happen. Today it is dead. Money is the same. If the bank owns it, it’s not your money. If an exchange holds it, it’s not your crypto. Freedom comes from letting go of fear of responsibility.
Corporations, like living organisms, must adapt to environmental changes in order to survive. It’s clear that customers want to be in complete control of their digital assets. If exchanges do not embrace this trend, they may just accept their own doom.
Mark Basha is the managing director of the Web3 Division at Xwecan, a global PR and communications agency. He is also a director of Hokk Finance and co-founder of Muraskai, a blockchain mobile he games and media studio.
This article is for general information purposes and is not intended, and should not be construed as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views or opinions of Cointelegraph.
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