Centralised or decentralised exchanges? Reasons for the new crypto withdrawal movement?

Withdrawing the crypto movement once again

On the Internet, some people in China's crypto communities have called for all users to withdraw token and coin from centralized exchanges. Many people of the crypto circle responded. The movement is called “withdrawal of cryptocurrencies” also called the “Sep 6” movement.

This movement came as a result of long term frustration at centralized exchanges. It was reported that it is not uncommon some exchanges manipulated data and price for their own profits, charged high listing fees, and listed lots of scam projects. Users complained and may swift to other exchanges. But it is not a once in all solutions. Even big cryptocurrency exchanges are not reliable at all. Recently, Korean's largest and third-largest exchanges are raided by police for scam reasons. We have to rely on them as the “trusted third parties” when we would like to exchange.

But now the story is a bit different from before with the hot of decentralized exchanges.

Since the hype of DEX, the decentralized exchanges have gradually replaced the centralized exchanges as a more convenient and manipulation free exchanges.

It is worth noticing that there are already a few similar movements before. What is different for this time is that users now have alternative choices of decentralized exchanges like UniSwap and SushiSwap.

Decentralize exchanges and further remove trust in trades

In bitcoin whitepaper, Bitcoin was described as “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”. In a nutshell, Bitcoin holds the mission to remove "trusted third parties" that are not trustworthy at all.

Bitcoin and its underlying technology have had profound impacts on the monetary and financial systems. In the post "Blockchain Brings Monetary and Financial Freedom", three facts of money were introduced: money form, money issuance, and the flow of money. These three factors are changed by bitcoin. The bitcoin has brought back the decentralized money issuance mechanism like the gold standard once did. Actually, the absolute power of money issuance is in large extend an extension of government power and it is one of the key problems which could lead us to "the road to monetary serfdom". As the bitcoin founder Satoshi Nakamoto once said,

The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible. In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.

Ethereum introduced the concept of "smart contract", which enriches the assets expression ability on blockchain.

With stablecoins and more blockchain represented products, the blockchain world is getting more connected to the real world. As the hub of exchanging values of cryptic form, cryptocurrency exchanges are highly centralized which caused lots of problems. Under strong regulations in financial industries, it was inevitable that there are many scams, cheating, and scandals. Recently, it was reported that "Crypto Debit Card Issuer Wirecard Missing Over $2 Billion in Cash". 

It is the trend for the cryptocurrency exchange industry to transform the reliance on "trusted third parties" which is operated by a small grip of people into trust machines that is guaranteed by blockchain and smart contract. The hot of decentralized exchanges is just a beginning.

Problems with decentralized exchanges

Decentralized exchanges are the trend, but it is was not without any problems. The UniSwap is one of the successful decentralized exchanges. But soon there are many UniSwap forks. The money effect of SushiSwap ignited more decentralized exchanges with their native token. Some of the forks simply target selling "the exchange token" at a better price. At all, there is almost barely any costs at creating a new decentralized exchange, but the return could be huge if good marketing. The Blockstream CEO even describes Sushi token as a "Ponzi formula". The credit bubble is one of the major reasons for the "great depression". It is the root problem of the monetary system. The decentralized exchange token is another case of "exchange credit for your real money". What is worse, there are no regulations on the credit of "decentralized exchanges". The founder of SushiSwap is still kept secret and anonymous. But it is real the founder's SushiSwap has transferred the Sushi token into more reliable Ethers.