Alright, we all know DeFi AKA decentralized finance. It's the future of finance where we can earn yield from our cryptos without a middle man, while holding our own keys and cryptos to do so. The feeling of handing back control of your money to yourself without having anyone to lock your account because of a server maintenance, or suspect of you as a bad actor, and many more bad examples of centralized entity making decisions that are against our right to hold our assets.
Managing our own assets are as important as holding your wallet, phone and ID close to your heart, especially the phone as nowadays people prefer the convenience of accessing DeFi with the tip of your hand. However, there might also be many reasons why people choose to put their money into other people's hands to take care with.
And the main reason is: We are humans who make mistakes
People have underestimate how easy it is to lose your private keys if you're not careful enough. Humans make mistakes by nature. We tend to forget or misplace things sometimes, and that mistake can prove costly. Say you want to create a wallet and record down your 24-word seed phrase, most of you would probably have a book or journal to write them down. What if you lost the book? Accidentally dropped it somewhere that you can't retrieve it? Drenched in water due to a flood? Don't you dare writing them down on a piece of paper, because I'm sure as hell you're gonna lose it somehow, maybe your dog might fancy having a bite and all your seeds have become its bones! (Unlikely but it can happen). You can try writing down in multiple books or journals and place in any safe location around your house, but if your house is caught on fire and burnt down everything you have, your seed phrases will also be in ashes and you'll never recover your funds.
What about hardware wallets? Yes, they are sturdier, more reliable way of storing your cryptos offline, made in metal or stainless steel casings that are also fireproof and shock resistant so that your funds will be safe in any environment. Do note that you still have to jot down the seed phrase so that you can recover your funds from your hardware wallet like a Ledger Nano S if you somehow lost them or change to a new wallet, which also brings the same concerns as the ones mentioned above. Speaking of the Ledger, if you finally got one or planning to buy one, Ledger has reported that there are 216 ongoing phishing campaigns which means if you accidentally slip yourself into just clicking a link sent by them, your private keys will be extracted by them and they can steal your funds from your wallet. For new users, some may even buy hardware wallets from third party suppliers and then end up losing all their funds because they think its cheaper.
Another option is to buy a safety box to keep your hardware or private keys that you written down safely there. It's fireproof, shockproof, heavy and bulky enough that it's inconvenient to carry around. It's a great investment so that you can keep all your important possessions in one safe place, secure it with a pin code/biometrics. The only risk is some high-level thief breaking into your house, dust your fingerprints to figure out your pin code, and then take everything from that safe box, which the risk of this happen is very low.
Furthermore, Cryptosteel is also a more solid alternative to storing your private keys with some similar risks as paper wallets such as it's convenient to carry around, can be easily lost or stolen if not stored properly.
All crypto enthusiasts and experts alike will keep reminding you to never share your seed phrases to anyone ever. Yes, I also recommend you to safeguard your seed phrases carefully. However, there's always the slight chance that scammers can come out with creative ideas so they can indirectly extract your seed phrases before you realized it's too late. That's the issue with holding your own private keys. If you lost it, it's your fault. Losing few hundreds to scammers is not too bad, but if its in the thousands or millions, then it's really no joke, People's lives can be at stake, and they have themselves to blame. Just look at an example of millionaires at risk of losing millions because they forget their password. There are people out there drenched themselves into depression for the silly mistakes they made in giving out their private keys by accident.
So what's the alternative? Centralized finance.
Complain all you want about how they restrict your withdrawals due to a server maintenance, or simply changing the withdrawal fees at anytime to profit themselves, or blocking you from trades because your KYC is not approved, or they bankrupt themselves and run away with all of your money, centralized finance will still exist in some ways to help people make less mistakes. If you're clumsy enough to hold and store your private keys, just let a platform you trust to take care of it for you. Centralized finance can be an option especially for the elderly who have issues with short term memory loss, or anyone who is forgetful enough to misplace their private keys.
Another reason why centralized finance can be better is because they have a security team in place to create features to safeguard your keys and cryptos. Take Celsius as an example. In their security page, they have many features to protect your assets such as a cybersecurity personnel, 3rd party security, regulatory compliance, multi-factor authentication, cyber threat intelligence and so on. In addition, users can activate 2FA, whitelist your crypto withdrawal adresses and activate HODL mode so that even with an account breached, it will take at least two days for the hacker to successfully transfer all your funds out if you do it right. Celsius will also notify you via email if someone logged into your account, so you can have time to deal with these situations and safeguard your funds when necessary. In contrast, your private wallet is only safe with just a password/pin code and a seed phrase. If you lose your seed phrase, you lose your funds forever.
Big centralized platforms such as Celsius, Crypto.com, Binance, Coinbase etc. also have their bounty programs to reward white hat hackers for identifying bugs in their code to prevent vulnerabilities in the system. Reputable exchanges are also audited by verified auditors to ensure the legality and security of the system.
Besides, there are also underlying risks to DeFi, such as smart contract failures, fake token scams, "impermanent loss" liquidity risks, fake audits and many more. If you're not smart enough, you'll definitely be a victims to these problems very easily. If centralized platforms are done right, such as constant communication on platform updates and have enough transparency, centralized platforms can be safer than DeFi in many ways.
Conversely, there are also many controversies to centralized platforms as they are prone to mishandle our funds in random circumstances. We all know major hacks such as Binance and Kucoin which also doubts us of trusting these security teams from doing their jobs. Reducing our mistakes will be offset by the centralized platforms making their mistakes, so it's always best to do your research and ensure these platforms are credible enough to have your trust in putting your funds with them.
Of course, I'm not encouraging people to put all your money in centralized platforms because we all want to have that freedom of owning our money. It is basically why cryptocurrencies are created in the first place. As more people have experiences in the crypto space, we tend to have a better understanding on how to best manage our money. Personally, I have funds stored in both centralized and decentralized platforms, with a hardware wallet for cold storage. I prefer some diversification as they are very important so that you don't hold all your funds in one basket. Even though you're bullish and all-in on one project, ensure that you'll have multiple wallets so that if you accidentally given out your private keys from one of your wallet, you are only losing part of your funds to scammers or hackers.
Scammers and hackers are everywhere and more will join in to attack you as cryptocurrencies reached a trillion-dollar market cap. Whether if you have your funds in your own wallet, cold storage or in a centralized platform, there are many opportunities for them to be smarter in creating different ways to siphon your private keys or to hack our funds from these exchanges. The more you read into how to safeguard your cryptos, the more it rewards you to pave a path to financial freedom earlier.
