Bitcoin was created to enable people to be their own banks, yet still, many users opt to store their bitcoins on centralized exchanges because it’s easier. Over the years, we’ve seen a ton of exchanges fail due to hacks, fraud, or just bad management, and this has resulted in huge losses for their customers.
Often, when these exchanges go bankrupt, users find out they’re treated as unsecured creditors. This means they might only get a fraction of their funds back, or worse, nothing at all.
Self-custody is the only way to really ensure your bitcoin’s safety. So, should users just take the hit for the risks of keeping their bitcoins on exchanges, or is it time for governments to step up and provide better legal protections for those customers?
The best is to just have your coins on noncustodial wallet, but there are some people that are traders that do not like moving their coin on exchanges daily. They may even be trading and suddenly the hack occurred. Some exchanges have safu which I will prefer than exchanges that do not have it, although I do not trust the safu but I prefer it to the exchanges that have none. If the government can regulate the exchanges in a way that users coins will not be lost after hack which is not possible or users coins are protected by something like safu compulsorily, it will be better. But I guess this will close down many exchanges.
Centralized exhanges are already regulated by the authorities, and they comply with AML and CFT laws. But they cannot prevent the exchanges from falling victim to hackers. It is the services that would have to invest in robust security and hire the best hands to protect themselves, which many of them fail to do on multiple occasions.
As for storing your funds in a custodial service, you ought to know the risks before doing so and if you choose to still go ahead, then you should be accountable for your actions. You don't only face the risk of losing your money if the exchange is hacked or collapses, you can also lose your funds if the service decides to confiscate it for whatever reason they'll tell you!
Stronger protection = stricter verification + higher fees (services + taxes).
So what's the preference? The law will only protect those who truly meet the criteria. And in practice, services punish the wrong people. I doubt people will simply change their minds just because they read "stronger consumer protection."
And none of this actually protects an exchange from hackers or exchange collapse. Stricter verification could limit illicit funds from passing through crypto exchanges, that is if the exchange is fully compliant, we have seen Binance do otherwise and had to answer for it. My point is, crypto regulations has its pros, but people should not wrongly believe that their funds are safe in a crypto exchange, because the service is compliant with law enforcement.
Few years ago, the government was against bitcoin, such that we were praying that the government should adopt bitcoin. Now that the government have come by themselves and through the institutions, we started crying and wishing to have the status quo.
Op, have you forgotten that one of the purposes of bitcoin is for you to be your own bank without government excessive regulations? So, because of people who decides to leave their bitcoin on exchanges, you are proposing that we give government more power and strictness to monitor exchanges, users, excessive tax and jail everyone?
No, it hasn't gotten to that extent. There are law courts for every case and that is okay imho.
"Nothing is as restrictive as the idea of security."(c)
Buddy, stop. Whenever I hear the government talk about security or strict protection, it only means there will be more legal restrictions.
I wouldn't say the government's negligence or nonchalance to matters like this is proper but to me, it's as though they too are telling customers "you should be in charge of your coins" because keeping it in these exchanges is a risk in itself so if laws are put in place to curb these issues, more people will be too relaxed. Non custodial wallets are the safer option as that keeps you in charge and you call all the shots, no restrictions or too much hassle when you need your money.