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December 21, 2022 World

Are Crypto Exchanges and Stock Exchanges the Same?

Over the course of a year, Tom, an artist, has invested hundreds of thousands of dollars in cryptocurrency.

His assets, worth $700,000, were trapped in an account he couldn’t access after FTX, the world’s third-largest cryptocurrency exchange, abruptly collapsed, leaving millions of investors stranded and terrified as they await the outcome of the company’s liquidation. Many investors believed it was safe because they were told it operates just like the stock exchange.

Unlike stock exchanges
Cryptocurrency exchanges are sometimes compared to stock exchanges. The truth is, they have no similarities because stock exchanges are highly regulated. While cryptocurrency exchanges have little to no regulations.

Cryptocurrency exchanges are simply private companies that run a Ponzi scheme. Even cryptocurrency exchanges, such as Binance, Coinbase, and FTX, undermine the basic concept of blockchains by establishing a centralized system, ignoring the fact that bitcoin and blockchain are decentralized systems that will allow everyone to conduct free transactions without restrictions.

Decentralized vs. centralized
All of this, however, needed some technical expertise. Cryptocurrency exchanges simplified the requirement for this process. They made it simple for everyone to trade crypto, just as web browsers made it simple to navigate the Internet.

There are two types of exchanges: decentralized (DEX) and centralized (CEX).

Decentralised exchanges are simply online platforms that connect buyers and sellers of cryptocurrencies. They exist solely to facilitate trading. You must still keep cryptocurrencies in your own wallet (a process known as “self-custody”).

Centralised is different, it doesn’t require a wallet and is a one-stop shop service. They are more than just a middleman between buyers and sellers. Rather than self-custody, they act as caretakers, keeping investors cryptocurrency for them.
Centralized exchanges(CEX) are popular and easy to use but using these platforms means you lose control over your tokens or coins

A CEX act as a brokerage and a bank converts investors’ fiat money into crypto and vice versa and also keeps investors crypto on their platform. It can also borrow or lend cryptocurrency without investors’ permission. This is how FTX was able to use millions of investors’ money to fund their personal lifestyles and projects.

The power of marketing
Like most financial institutions crypto exchanges gets a commission on every trade that is how they make money as result, they invest a lot into marketing and advertisement convincing millions out there to invest to trade on their platforms and hence increasing their profits.

Not your key, not your coins
In the crypto world, there’s an expression that goes, “Not your key, not your coins.”
It means your crypto is safe when you are storing your own coins in your own wallet to which you alone control the private key.
Because crypto exchanges are not like stock exchanges, in case there is an exchange collapse or cyber attack, you might lose everything.

All investments are risky, but crypto is riskier due to its unregulated nature. So please follow these guidelines:
First, understand the process of trading crypto. Discover how to make use of a self-custody wallet.
Second, a DEX is more secure if you still prefer crypto exchange.
Finally, invest only what you can afford to lose.

Image Source: https://corporatefinanceinstitute.com/
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