Custodial vs Non-Custodial Exchanges

[btcto200k]

Decentralization is the most important part of blockchain technology. Unfortunately, even though it has been upgrading all the time it still is not perfect.

Every person, who keeps coins on a private wallet instead of exchange is afraid of losing them.

If it happens there is no way to restore them and the user loses access to every fund that was stored there.

On the other hand, if you keep your coins/funds/money on the exchange you don't have access to your private keys. The wallet is under full control of the exchange and people who manage it.
And as my grandpa used to say “Not your keys, not your Bitcoins”. God bless his soul.

Exchanges, where users don’t have access to their private keys, are called “Custodial”

As the results of such a solution, we now have witnessed several hacker attacks on exchanges that cost people money. It also opened a backdoor for market manipulation (Exchange have access to their users coins/funds and may affect the price and the market).

Custodial exchanges
As I mentioned before, Custodial does not give access to private keys.
But…
It gives you a big advantage - you can restore access to your account if you lost/forgot your password.

Also, it is comfortable in trading, your coins and funds are in one place which is easy to manage.

Yet… when the exchange goes bye bye (under), your funds go bye bye as well.

And here comes another important rule “ DO NOT KEEP YOUR COINS ON THE EXCHANGE”!


Non-custodial Exchanges
Non-custodial wallets give you full control over your funds. The owner of the wallet is the only person who has access to his private keys and funds on the wallet and the exchange has only permission to use it when you trade. Your funds are safe but this system has issues, if you lose access to your wallet (lost password, deleted security files, destroyed phone) you will never get them back. That’s why it is so important to keep your private keys in a secure place.


Currently, 90%, (if not more) exchanges, are based on Custodial technology, which everyone probably knows. In my opinion, exchanges such as Binance, Bitbay, Bitmex etc. that can still be robbed and are unable to ensure the protection of users' data, will sooner or later become a thing of the past.

In their places New exchanges with non custodial technology will arrive and replace them. This is the natural order of things.

What’s your opinion guys? Feel free to discuss this topic Smiley

[masterrex]

Well you are right both Custodial and Non-Custodial cryptocurrency exchange platforms have advantage and disadvantages all that you mentioned are correct, But I think those risk can be minimized or prevented if we the users were doing it in the right way, for example, just only use those reliable crypto exchanges like Binance, etc I believe that they can protect its users from outside threats unless it happens beyond their control, the risk is part of crypto industry thats why for me Its just a part of the game. just consider it as a gamble.   

[FOPL]

I have be fond of anything decentralization on in the crypto space. In the context of exchange we most of the time opt for the centralized due to so many factors and not limited to liquidity only. To only way to stay safe is to get a non-custodial wallets such as Atomic Wallet and store your fund when you're not trading. It even has an in built exchange so if you are new and would trade huge and active, then you make good of the tool. Everything happens right in the wallet so you certain you have full control.

[btcto200k]

I agree, it is part of the game. But Binance and mex control too much funds now. It is waiting to be like the next mt.gox. I personally think its safer to use a non custodial exchange than compared to central excahnges.