Centralized exchanges have a long history of being a prime target for hacking groups. It seems like a weekly occurrence where thieves are able to access and steal funds from these entities, with the amounts stolen ranging up to hundreds of millions of dollars.

Similar to a bank, these centralized entities are in full control of the funds the moment a trader makes a deposit on the exchange. They also act as clearing houses that provide trade matching and clearing services internally, whilst maintaining ownership of their customers’ assets. With this infrastructure, traders must fully trust the exchange to not only store their assets securely from both external and internal threats, but also facilitate trades that take place. The hot wallets they use to store their customers’ digital assets make it possible for said hacking attempts.

The most recent hack occurred this week on Bithumb, where approximately $31 million dollars of cryptocurrency was stolen. At the time of the attack, Bithumb was ranked as the sixth largest exchange in the world by 24-hour trading volume. The South Korean exchange is one of many centralized exchanges that have been a victim of such incidents.

A tweet posted by Bithumb shortly after the attack, advising customers to avoid making deposits on the exchange.

Coinrail also suffered from an hack earlier this month, where more than $40 million dollars of cryptocurrencies were stolen, including $19.5 million of Pundi X tokens (NXPS), $13.8 million of Aston X tokens (ATX), $5.8 million Dent tokens (DENT) and $1.1 million of Tron tokens (TRX).

Without a change in the underlying infrastructure of these exchanges, similar types of hacking incidents will continue to occur. Many believe the solution to prevent these security threats is by using decentralized exchanges as a platform for trading. Decentralization is the intent of the cryptocurrency trading community, so using blockchain (distributed ledger) technology to facilitate trades does make sense. However, current decentralized exchanges are not yet widespread amongst trading because of several reasons.

They lack fiat to crypto trading pairs (currently they only support crypto to crypto trading pairs), which is a huge factor for entry-level traders wishing to deposit or withdraw fiat using their credit/debit card. With a smaller audience of users, trading volumes of cryptocurrencies are usually very low. With low liquidity, markets can become volatile, causing prices to become unstable — especially when traders place large orders. Decentralized exchanges only support basic trading functions. They lack advanced trading functionalities such as margin trading, stop loss orders and limit orders. Their user interfaces are usually a pain to use as well, making it even more difficult for a trader to become accustomed to the platforms.