Despite the continued vulnerability of exchanges, centralized crypto markets continue to flourish. This year has borne witness to several notable hacks and exchange failures at Cryptopia, QuadrigaCX and most recently Bitrue. Hackers can target both the hot wallets of exchanges or users’ login credentials via phishing. The ProofofKeys event, aimed at pulling assets off exchanges, came and went, with little noticeable impact.
Adding to this risk is the increasing demands on centralized exchanges (CEXs) by governments. There is increasing pressure for more extensive KYC and AML provisions, and the delisting of assets that may be securities. Most recently we have seen the calls for increased data sharing between exchanges. The Financial Action Task Force, a global organization aimed at coordinating national financial policy, recently stated that nation-states ought to force exchanges to share customer data with each other, including names, account numbers, and addresses.
There are clearly serious downsides to using centralized…