Imagine if we could safeguard the future of blockchain by returning to the core principle behind its inception — decentralisation. That’s how we’ll shore up trust and opportunity for all.
Blockchain was created for good. Decentralisation signposted the way to a fairer financial system, characterised by transparency and trust. Somewhere along the way, though, the technology took a detour towards centralisation. Control and failure crept in, and trust ebbed. It’s time to get back on track, so everyone can reap the rewards of DeFi.
Decentralisation was the original guiding principle of blockchain. Decentralised transactions are recorded on a public ledger — the blockchain — which is maintained by a network of computers. The result? Transactions are transparent to everyone and immutable (unable to be changed).
This was the vision of blockchain’s creator. In 2008, Satoshi Nakamoto launched Bitcoin with the intention to create a decentralised, public, tamper-proof digital currency that could serve as an alternative to ‘fiat currencies’ controlled by central banks.
Trust is transformative — when it’s guaranteed.
From the offset, this newfound, guaranteed trust was a clear benefit of blockchain, especially when it came to currency. It had the potential to revolutionise how we all spend, save and invest — for the better.
Fiat money — centralised, government-issued money not backed by a ‘real’ commodity, like gold or silver — relies on unproven trust in the issuing government. Can they maintain the value of the currency? If worst comes to worst, will they ‘make good’ on your money? And could they in fact be up to no good? History has shown blind faith in conventional economies can leave you burnt.
In general, decentralised money is considered to be more resistant to inflation and government manipulation. On the flipside, fiat money is currently more widely accepted and easier to use in day-to-day transactions.
DeFi drives trust. But it’s not user-friendly — yet.
As blockchain technology has evolved, the concept of decentralised finance (DeFi) has emerged as a way to align with the original intentions of blockchain. DeFi protocols, such as AAVE, Compound and Dai, are built on open-source, public blockchain networks and allow for transparent and trustless financial transactions. These protocols enable users to access a range of financial services, such as lending, borrowing, and trading — without the need for a central intermediary.
If that sounds potentially complicated to the uninitiated, therein lies the problem. DeFi is a relatively specialised realm. To enter the game, you’ll need to spend time orienting yourself, becoming comfortable with your new surroundings, and learning new ways of interacting.
To date, DeFi has been distinctly Web3 — technical, difficult to navigate and often with ill thought out design make it feel intimidating to end users. It looks and feels radically different from what we’re used to, consumer-grade tech and effortless, user-friendly experiences.
CEXs brought ease. At a cost.
To answer this accessibility need, centralised exchanges (CEXs) entered the scene. They sought to facilitate crypto trading for everyday users, removing the ‘friction’ and barriers to entry presented by DeFi.
But while they cut some friction, they also eroded the original principles of blockchain. As centralised exchanges, they can’t be fully trusted or verified. That means these platforms are vulnerable to manipulations from bad actors and can be compromised by political, emotional, greed-driven decisions — the distinctly flawed, human influences DeFi was created to transcend.
These flaws aren’t simply theoretical — they’ve been borne out in practice. The failure rates of CEXs compared to DeFi protocols are significant, with the largest exchanges being responsible for most of the reputational issues and mistrust that threaten the future of the crypto industry.
In recent years, we’ve seen several high profile CEX failures:
Back in 2014, Mt. Gox, once the largest Bitcoin exchange in the world, filed for bankruptcy after losing 850,000 Bitcoins — worth around $450 million at the time. This was down to a hack.
In 2018, the Coincheck exchange in Japan lost $534 million worth of NEM tokens. Again, due to a hack.
On November 11 2022, FTX exchange declared bankruptcy after an excessive number of customer withdrawals and the company’s inability to meet demand with the assets it had in reserve. It came to light that Alameda (FTX’s sister company) had been using FTX customer assets to cover trading losses.These examples highlight the vulnerability of centralised exchanges and the importance of security measures. These incidents have led to some customers losing their investments. Again, this underscores the need for decentralised exchanges and other forms of decentralised finance. The cost of CEXs? Increased regulatory control and heightened risk.
We need resilience.
DEXs on the other hand, have proven to be more trustworthy and reliable, since their code is open-source and can be verified. They’ve also been able to withstand market volatility and other macroeconomic events. Amidst this kind of turmoil, they’ve continued to operate without disruption to users. And they’ve been able to withstand attacks, such as the recent exploit on bZx. Again, with no disruption to users.
DeFi projects, like any other technology, are susceptible to hacking. However, many of these hacks have been a result of vulnerabilities in the code of smart contracts. As the smart contract language and technology evolve, it’s expected the number of successful hacks will decrease.
The benefits of using a decentralised exchange (DEX) over a CEX include transparency, monitoring of treasury, and visibility into how distributions and profits are handled. DEXs also give users more autonomy over their funds, as they’re not held by a centralised intermediary.
The future? User-friendly DEXs.
While traditional centralised exchanges did provide widespread access to crypto services, it came with a significant cost for the industry. As the crypto industry continues to evolve, effortless DEXs will likely become the future of crypto trading.
So, for all its original ideals, crypto took a wrong turn along the way. The industry would have achieved far greater public trust to date if the emphasis had been placed on DeFi — not CEXs.
Yes, the road would have been longer as the masses learned how to navigate new environments, but we would have avoided the costly CeFi deviation.
Now, it’s time to get back on track. The future of the crypto industry is decentralisation and — to build that future — we need to pay respect to the vision of the innovators behind decentralised protocols.
Let’s forge ahead with a focus on the real value of blockchain technology and its original guiding principles, rather than being steered off course by the profit-driven incentives of centralised exchanges.