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Not Your Keys, Not Your Crypto
The importance of owning your Crypto Keys and how decentralized cryptocurrency exchanges promote this is something everyone should fully understand. The security and control factors that make these concepts essential for anyone who wants to use crypto safely and effectively is key.
Let’s define what a Private Key is as it relates to blockchain technology and specifically a crypto wallet so that it’s simple to understand. A Private Key is a string of characters that allows you to access and manage your digital assets in that specific digital wallet. It works like a password that locks and unlocks your digital wallet. There are two types of keys: public and private. A public key, which can be compared to an email address that you can share with others to receive digital assets without the concern of being hacked, while a private key is like a secret code that only you should know. Your public key can change at will, depending on the digital wallet, while your private key is set in stone.
Why is it important to own your crypto keys?
Because if you don’t, you are trusting someone else to hold them for you, and that means you are giving up some degree of security and control over your digital assets. For example, if you use a centralized crypto exchange or a custodial wallet service to store your digital assets, you are relying on their security measures and policies to protect your funds from hackers, theft, or loss. You are also subject to their rules and regulations, which may limit your access to your funds or impose fees or restrictions on your transactions. It may even give custodians the ability to leverage or utilize your digital assets for their benefit.
On the other hand, if you own your crypto keys, you are the only one who can access and manage your digital assets. You have full control over your digital wallet and digital assets at all time, without intermediaries such as a centralized entity. You are also responsible for your own security and backup of your keys, which means you need to take precautions to keep them safe and accessible.
This is where decentralized cryptocurrency exchanges come in. A decentralized exchange or DEX is a place where you can trade and swap cryptocurrencies directly with other users, without going through a central authority or intermediary. You can use your own wallet and keys to connect to a DEX and execute peer-to-peer transactions on-chain. Examples of DEXs include Uniswap, HootDex, PancakeSwap, dYdX, and Kyber.
How do decentralized cryptocurrency exchanges promote the ownership of crypto keys?
By allowing you to trade or swap without giving up custody of your digital assets or keys to anyone else. You can keep your digital assets in your own digital wallet until you confirm a trade, and then send them directly to the other party’s wallet. You don’t need to deposit or withdraw your funds from a central platform or service that may charge fees or impose limits on your transactions. You also don’t need to trust or rely on a third party to secure or manage your funds for you. It’s basically a trustless system, where pricing is derived by either oracle pricing or based on a liquidity pool or both.
Decentralized cryptocurrency exchanges also offer other benefits, such as:
Lower risk of hacking, theft, or loss: Since there is no central point of failure or attack, DEXs are less vulnerable to hacking or theft than centralized exchanges. Also, since you control your own keys and digital assets, you don’t have to worry about losing them due to the negligence or malfeasance of a custodian.
Higher privacy and anonymity: Since DEXs do not require you to create an account or provide personal information to trade or swap, they offer more privacy and anonymity than centralized exchanges. You can trade or swap without revealing your identity or exposing your transaction history to anyone. However some decentralized crypto exchanges are beginning to conform to integrating AML or KYC protocols to adhere to jurisdictional laws as deemed necessary.
Greater innovation and diversity: Since DEXs may be built as a layer-2 on a blockchain network and offer smart contracts it has the potential to increase innovation and have much more diversity than centralized exchanges. You can find different types of DEXs that cater to different needs and preferences of users, such as liquidity pools, automated market makers, order books, lending platforms, etc.