The bull is looming in the horizon:

There’s something poetic about seeing crypto going up almost a year to the epic collapse of FTX. One of the darkest periods in this industry’s brief history is coming to an end and the future suddenly looks bright again. The painful events of the bear market may be really entering an endgame of sorts, as SBF and others stare down the barrel of some serious jail time. And although it is a just a mini green wave, it has never failed to make us salivate about the thought of a fully-grown bull looming in the horizon. A bull that may be coming sooner than we think.

It doesn’t take more than a quick glance at Twitter to notice that optimism is spreading around as most investors start to transfer their funds from hardware wallets into their favorite trading exchanges to get ready for the next green season. The Fear & Greed Index also suggests that most traders are having an increasing high risk appetite too. Most crypto centralized platforms such Binance, OKX, CoinBase...etc. are seeing increasing high level of trading volumes every day.

Well, this is all good and sound, and I can't deny that I'm drooling at the thought of a 100x of my favorite alts too. However, if there is one thing to learn from crypto is that we should always hope for the best and expect the worst. These seven little words have become kind of a personal crypto mantra that I mutter to myself under my breath every night. We should always expect that another crisis is never far away and we cannot allow ourselves to naively imagine that all exchanges are now completely safe and that an FTX-style breakdown will never happen again.

Proofs of reserves are good, but not perfect:

Before the crash of FTX was a thing, most crypto exchanges simply claimed they had enough reserves to all user assets and we had to trust them about it. In the post-FTX landscape, however, blind trust without proof is no longer an option. Exchanges realized the importance of transparency and took steps to reassure users that their funds are indeed safe.

Binance, for example, published its first proof of reserves (POR) in late October 2022 and the trend spread like wild fire. Top other exchanges like OKX, KuCoin, and Huobi followed suit providing periodic proof of their reserves to gain user trust.

Basically, proof of reserve (POR), is the process of verifying that the assets held by a cryptocurrency exchange in reserves are 100% consistent with the assets it holds on behalf of clients. Any unauthorized use of user funds for unaccountable purposes such as lending or trading is prohibited. As you can see, this is the absolute opposite of what traditional banks have been doing with our money for decades. Something that plays a crucial role in maintaining investor confidence and boosting the growth and reputation of the crypto industry as a whole.

Unfortunately, however, there is always a level of trust you have to put when dealing with any centralized entity. For example, we still have to trust that they won’t manipulate their reserves data by temporarily moving funds into a hot wallet just for the purpose of verification. Additionally, Those PORs only show that exchanges have enough reserves to cover its user funds in a specific point it time. It doesn’t guarantee the reserves will remain untouched in the future. AS a rotten cherry on top, none of these measures will make any exchange immune to security beaches. Let’s not forget that Binance itself was a victim of a hack back in 2019 for about $40 million, and although users' funds were fully covered by the exchange, one has to wonder what would have happened if that hack had been larger than Binance’s capability to cover. I for one don't want to even imagine...

Yes, there are continuously commendable attempts to improve the structure and transparency of the POR process. Binance included zero-knowledge verifications with POR Systems. Other exchanges are trying to get third-party auditors involved, but the fact of the matter is that most reputable auditors reject touching crypto-related platforms in the wake of FTX.

What is even worth is that most major auditors have been actively discouraged from engaging with crypto by regulators and authorities. The US. Senate’s Elizabeth Warren went as far as dismissing crypto audits calling them “shame”_Something reveals just how much work that still needs to be done to ensure transparency and security in the crypto trading industry.

Was not invented for this...

Vitalik Buterin once said, "I definitely hope centralized exchanges go burn in hell as much as possible".

Every time I use a centralized exchange, I can't help but wonder if Bitcoin was meant to be here. No, It definitely wasn't.

BTC was invented to get rid of all centralized entities that dominated the traditional economy altogether, so it's a bit ironic that those same centralized entities have acquired the lion’s share of the crypto market as well.

Don't get me wrong. I know they have nice interfaces, easy access, straightway options, and most importantly large volumes. I use them myself on regular basis too, but this doesn't change the fact that relying on centralized exchanges contradicts the very reason why cryptocurrency was invented in the first place.

I love Ben Cowen (one of my favorite Youtubers), who put it better than I could ever do. “Treat an exchange like a public toilet: go in, do your business, and get the hell out.”

 

In other words, if you practice self-custody, you should always keep exposure to centralized exchanges to a minimum. Get in, trade your coin or token, and once you’re done, run. That way, even if the s**t does hit the fan, you should be well away from it…

THANK YOU FOR READING :)