The disbelief in institutions and in the entire traditional financial system was what motivated the creation of Bitcoin. He made it possible for people to have sovereignty over their heritage and not be at the mercy of manipulations and schemes. But that doesn't mean that just by turning part of your assets into cryptocurrencies, you are free from any threat.
To keep your tokens safe, you need to understand the platforms and services you use and what giving custody of them entails. One way to slow down the development of the blockchain universe and facilitate the adoption of currencies was the creation of centralized tools. But is this a good idea?
The first step for you to make conscious decisions when moving your currencies, making investments, buying, selling or converting them into fiat to withdraw them, is to understand the risks and what it means to expose yourself to using the companies and services that make these transactions possible. . Especially with regard to centralization.
In this article we will help you to understand or remember what decentralization is and how important it is for digital assets and also for your independence and freedom. So, read on and stay alert to keep your tokens safe and ensure that the blockchain's full potential is utilized in favor of protecting your assets.
What is centralization
Centralization is a management model defined in several branches of applied social sciences. In the context of cryptocurrencies, it concerns management whose decision-making power is centered on a particular person, or group of people, and other stakeholders have no influence over what will be decided.
This is the case, for example, in a bank. As a customer, you have to abide by the rules that are imposed. In addition, you need to rely on his management of your money to ensure that the amounts are always correct, as the records belong only to him. If your balance disappears overnight, the only way to prove there is a certain amount there is through documents provided by the bank itself.
Centralized tools and services
When you choose to use centralized tools and services, you need to understand in depth what your choice represents. As a rule, they have requested that you relinquish custody of your funds. This means that your digital assets will no longer be under your control, just like your money in a bank.
Once the tokens leave your wallet, there is nothing you can do to get them back if the organization or tool used fails to fulfill its part of the deal. Keep in mind that cryptocurrencies are not regulated, and it will be virtually impossible to take any action against those responsible.
The decentralization
The power that centralized organizations have is really worrying. Especially when we talk about your money. In the not so distant past, we had a president of the republic who determined the confiscation of amounts deposited in savings accounts of Brazilian bank customers. Think about what it could mean in your reality today if you kept most of your money in the bank.
This is one of the reasons why cryptocurrencies are so important. They were created to be used in decentralized environments, with the advent of Bitcoin. In a decentralized management model, there should be no person or organization in control. A network managed in this way must be maintained and controlled by each user.
What does it imply
In practice, decentralized resources will usually not require you to relinquish custody of your assets in order to use them. In cases where this happens, they will be kept at addresses controlled by contracts, with rules established in the network and cannot be moved from to meet the determinations of any entity or person.
In decentralized environments, your tokens will be safe. You just need to ensure that the contracts you are interacting with are secure. Of course, failures can happen and unknown weaknesses can be used by malicious agents. But, as a rule, it will be impossible for anyone to take control over their tokens that are being manipulated in decentralized environments.
The Exchanges
And that brings us to brokerages. The big reason they exist is the fact that it is through them that we can bridge the gap between digital assets and our physical bank accounts. They were created to meet this demand and fulfill this role with relative efficiency. But they also expose you to huge risks, like losing all your tokens.
That's what happened to many clients of FTX recently, the world's second-largest exchange. Even experienced users can lose the initial impulse of not trusting any centralized tool when dealing with cryptocurrencies and end up suffering a big loss.
We have already taught you some ways to avoid using centralized exchanges to make withdrawals and explained the reasons for this several times. But that doesn't mean you can't or shouldn't use them. They offer important resources and incredible opportunities when used correctly.
Centralized Exchanges (CEXes)
Large centralized exchanges, such as Deribit or Coinbase, offer their users a wide range of resources. With them, it is possible to operate derivatives, program purchase and sale orders, make exchanges and cross-chain operations (through different networks) with practicality, among other things.
But they will require you to make deposits. This means that you will need to relinquish custody of your digital assets in order to use their services. In addition, to function, they need to meet a certain level of regulation by government organizations. This means that your data and your movements may be inspected by the State.
To get the best out of them, try to deposit and keep in them only the fundamental resources for certain operations. Have separate wallets to receive funds from them and avoid linking them to your cold wallets, where most of your assets in digital assets should stay.
Decentralized Exchanges (DEXes)
Decentralized exchanges became all the rage a few years ago. They offered DeFi (Decentralized Finance) services that permanently changed how we consume and use cryptocurrencies. Its great advantage is that it does not require user deposits.
But that doesn't mean your tokens are completely safe when using a DEX. As with centralized brokerages, you need to act smart and very cautiously. On decentralized exchanges, you will be exposed mainly to risks linked to super-inflationary native tokens and exploits (when a hacker finds a breach).
You'll be able to swap them, exchanging a certain token for another, with mechanisms that allocate the tokens in smart contracts that guarantee the security of users. And you will also be able to apply your tokens to earn income on them by providing liquidity for other assets.
Be patient!
Patience is a very important virtue for those who want to do well in the cryptocurrency market. It is required at various times. And you need to remember to consider that the crypto market is still very young, the best is yet to come. Everything being built revolves around creating tools that can provide security and practicality in fully decentralized environments.
But we haven't reached that point yet. We are pioneers operating in an extremely hostile and unsafe environment, but one that offers opportunities that will not exist in the future. What you need is to stay informed and act intelligently, to make good decisions and take advantage of an era when it is possible to obtain satisfactory results while dealing with the inherent risks.