We could argue day and night, who is holding responsibility for such a hack. We could also argue about who pays the real costs of the hack: 7k BTC may easily be covered, but obviously the overall confidence in crypto and our community have taken hits, everytime big hacks have happened.

Instead, we argue that centralized, custodial exchanges are flawed by design. In fact, we identified 3 systematic flaws:

First, centralized exchanges hold your coins. You can trade and withdraw only with their agreement. Not only can they hold your coins hostage at will, but they are even forced by design, they have no other way as to completely lock withdrawals (see Binance, but also other exchanges) in case their accounts were compromised.

The reasons are technical: Imagine not only your personal email password has been stolen, but your master password for a password manager that holds your email, facebook, twitter and all other passwords. You would want to lock every account to prevent hacker’s access.

And that’s exactly what exchanges do in such a cases.

Second, centralized exchanges bait bad actors: Massive amounts of crypto tokens secured by the same mechanisms, ordinary users (like me and you) use for securing your own crypto. This so-called ‘honeypot’ lures hackers attention and incentivizes criminal activity.

Lets say, a hacker aims to steal 5.000BTC (~29,000,000USD million). To compare: Bitfinex lost 120,000 BTC in August 2016. Those sums of money surely draw attention.

Third, after a successful heist, the criminal can — to a certain extend — sell crypto anonymously.