Exodus vs. Centralized Exchanges

This article goes over the differences and benefits of using Exodus over centralized exchanges to buy and sell cryptocurrencies.


In this article


What is a Centralized Exchange?

Increased interest in blockchain assets has led to the creation of various ways to buy and sell digital currencies. One of the more popular ways to do so is through centralized exchanges, also known as custodial or hosted exchanges. The most well known and widely used exchanges are Coinbase, Binance, and Bitfinex. These exchanges are similar to brokerages in traditional markets like E*TRADE. For providing a platform to buy and sell cryptocurrencies, centralized exchanges collect service fees on things like buying, selling, and withdrawing crypto assets.

Centralized exchanges do provide benefits, such as the following:

  • Not having to manage private keys or backup phrases
  • Advanced buying and selling options like buying or selling on credit (“margin”)
  • The ability to set limit and stop-loss orders
  • (Some exchanges) ability to buy digital currencies with local currencies like US dollars
  • And more

However, there can be downsides to using such exchanges to buy and sell blockchain assets.


You Don’t Control Your Private Keys

For some users, not having to memorize private keys or backup phrases could be seen as convenient. There have been many stories of individuals losing a lot of their blockchain wealth due to losing their private keys. However, giving up control of your private keys to someone else can be equally as dangerous.

Your private keys give you control of your assets and without them, you don’t control your money.

You can think of this as putting all your money in a bank - the bank, or in this case, the centralized exchange, holds onto your funds (digital currencies) and allows you to access them for purposes like exchanging one blockchain asset for another. However, cryptocurrency exchanges usually don’t have the same kinds of regulations and protections, such as deposit insurance, as banks in the United States and other countries.


Limits

Exodus co-founder JP Richardson succinctly points out a fundamental problem with centralized exchanges in a Tweet: Because centralized exchanges hold your private keys, they can set the rules that determine how you will use your funds. These include withdrawal and deposit limits, as well as outright prevention and service denial.

Exodus enables easy and secure private key management to empower individuals with financial autonomy. Owning your private keys means full control of your wealth. No limits.


Exchange Hacks and Other Concerns

Centralized exchanges can be prime targets for hackers because they hold a large amount of crypto assets, making a successful attack very financially rewarding for bad actors.

The most notorious exchange hack was the 2014 hack of Mt. Gox, a custodial exchange that, at its peak, was handling more than 70% of all Bitcoin transactions. Many users lost what would be a fortune today.

On May 7, 2019, one of the largest cryptocurrency exchanges, Binance, was hacked for 7,000 BTC. This was one of the largest hacks in history and valued at over $40,000,000 USD at the time. 

Exchange hacks are a very real threat to your hard-won blockchain assets, as they still happen regularly.

Other issues that could wipe out your blockchain-based wealth include exit scams (exchanges running off with user funds), mismanagement of funds (e.g. losing user funds by misplacing private keys), and so on.

On the other hand, solutions like Exodus give you control of your private keys (you control your funds). If you practice good security, you can buy and sell digital assets safely without worrying about a Binance or Mt. Gox-like scenario, exit scams, or funds mismanagement.

This is because Exodus doesn’t “store” any of your assets for you. We merely provide you with a safe and easy way to access the blockchain, a database spread across various servers around the world that has records of your balances and transactions.

Even if something bad were to happen to Exodus the company, such as the company shutting down or the company’s website getting hacked, your funds would be completely unaffected. You would simply be able to use your 12-word phrase in another wallet and immediately have access to your assets again.


Giving up Privacy and Anonymity

If you choose to buy and sell digital assets on a hosted exchange, you often have to give up your privacy by going through a signup process and submitting important personal documents like passports or driver’s licenses to confirm your identity. While some users may trust a company with their personal data and gladly go through a signup and verification process, others might want to keep things private.

Exodus knows privacy is a growing concern in the digital age and never asks users for any personal information. Also, no logs of your activity are kept and all transaction data is encrypted on your device, for your eyes only. Even for larger transactions, no one will know about your financial activity but you and the blockchain, which doesn’t require personal information.

Another thing to be conscious of when using a centralized service is that your personal information like your identity, email address, password, and more can targeted as well - not just your funds.


Custodial Exchanges Geared toward Traders

Centralized exchanges are usually geared towards users who have experience with trading platforms. The features on such platforms are powerful and dynamic, but can be overwhelming or unecessary for users simply looking to buy and sell assets.

If you don’t know what limit orders are, don’t know how to read charts or order books, and are simply looking for a way to buy and sell assets with a click of a button, Exodus provides an easy way to do that.

All you have to do is click the Exchange tab (or exchange icon from one of your asset wallets), select two assets you want to exchange, enter amounts, and hit exchange - that simple!


Transactions on Centralized Platforms are Off-Chain

Transactions on centralized platforms can be quite fast, which can be useful for the likes of traders and others who need to buy and sell within a small time frame. Nevertheless, the reason for this speed is that the transactions aren’t taking place on the blockchain, which can take longer to confirm transactions for maximum security. In essence, they are “IOUs” and the trades are merely recorded on the internal servers of the platform you are using - not the blockchain itself. Your funds remain under the control of the exchange platform. It isn’t until you withdraw your funds to a wallet, where you control your private keys (and funds), that your transactions are finalized.

In contrast, exchanging in Exodus means all assets remain in your control. All exchanges are on-chain. Your assets are sent directly from your wallet and delivered directly back to your wallet—quick and easy with no counter party risk.

Even if you were to lose access to Exodus after buying or selling a digital asset using Exodus’ built-in exchange, the transaction would still live on the blockchain. All exchanges made through your Exodus wallet are on-chain which means they are recorded and confirmed on the blockchain itself. All you would need to do in order to regain access to your funds is restore your wallet using your seed phrase.


Fewer Assets to Choose From

While some centralized exchanges do offer the ability to buy and sell many digital assets, others are more limited in their selection and asset pairings.

On most platforms, altcoins (assets that are not bitcoin) can only be traded for major assets like BTC or ETH. In Exodus, you have more choices.

For example, if you wanted to exchange Zcash (ZEC) for DigiByte (DGB) on an online exchange, this is what the process would look like:

  • Send your ZEC to an online exchange. 
  • Exchange ZEC for BTC. 
  • Exchange BTC for DGB. 
  • Withdraw DGB from the online exchange to your wallet.

Here’s what that process looks like in Exodus:

  • Exchange ZEC for DGB. 

That's it! You can convert from ZEC directly to DGB without ever leaving your wallet. 

Exodus supports over 100 popular blockchain assets and is always adding more, which is great if you’re looking for an easy way to buy and sell many of the most popular digital assets in one place while maintaining control over your funds.


Differences in Customer Support

As the blockchain space has grown exponentially over the years, hosted exchanges, have unfortunately faced some growing pains - including a struggle to keep up with customer inquiries.

For experienced users, this might not be an issue but for those just getting started with blockchain assets, not having someone readily available to talk to about questions or issues can be stressful when your wealth is on the line.

Exodus knows that blockchain assets can have a steep learning curve and provides an extensive online help desk as well as 24/7 support to help users with any and all questions or problems they may have.


In sum, centralized exchanges aren’t all bad and do provide benefits like support for fiat currencies (USD, EUR, etc.), margin trading, and more.

Though if you value things like controlling your private keys (and funds), privacy, ease of use, large asset selection, and 24/7 customer support, Exodus gives you a beautifully-designed and safe way to secure, manage, and exchange your blockchain assets.

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