Bitcoin Family is moving more than $1 million into decentralized exchanges after FTX collapse

Confidence is rapidly eroding successful the crypto sector, arsenic it faces a wave of bankruptcies and investigations into Sam Bankman-Fried and his failed exchange, FTX, for losing and misspending billions of dollars successful idiosyncratic deposits.

But Didi Taihuttu, his wife, 3 daughters, and Teddy, a Pomeranian puppy they adopted successful Portugal past year, are arsenic assured arsenic ever successful their stake connected bitcoin — they're conscionable changing however they store it.

Ever since liquidating each of their assets and buying bitcoin successful 2017 backmost erstwhile it was trading astatine astir $900, the Taihuttus person safeguarded their crypto riches successful 3 main places: centralized exchanges (CEXs) similar Bybit and Kraken, decentralized exchanges (DEXs) similar Uniswap, and hardware wallets hidden successful concealed vaults connected 4 antithetic continents. But arsenic digital plus brokers, lenders, and exchanges proceed to autumn into bankruptcy — locking up lawsuit funds successful the process — the Dutch household of 5 is proactively moving $1 cardinal successful crypto into decentralized exchanges, which let users to bent connected to custody of their tokens.

"For me, bitcoin is inactive astir freedom, and decentralized currency should beryllium capable to beryllium utilized by everyone successful the satellite without needing to bash KYC oregon immoderate different regulatory stuff," Taihuttu told CNBC, referring to the know-your-customer, oregon KYC compliance, required by galore centralized platforms similar Coinbase. DEXs don't necessitate users to link an ID oregon slope relationship to the platform, hence making it an perfect custody solution for the Taihuttus.

CNBC caught up with the 44-year-old patriarch a fewer days aft the household made the determination from Lagos, Portugal, to Phuket, an land conscionable disconnected the occidental seashore of mainland Thailand successful the Andaman Sea. The household is presently surviving connected 0.3 bitcoin a period — astir $5,000 — and they are buying backmost the bitcoin that they sold erstwhile the cryptocurrency was trading astatine astir $55,000 a twelvemonth ago. For the Taihuttus, the cascade of crypto bankruptcies and failed tokens conscionable shows that "bitcoin is the king" and "completely antithetic than each the different projects."

While the Taihuttus did not person immoderate tokens tied up with FTX, Celsius, Voyager Digital, oregon immoderate of the different platforms to precocious spell under, the question of failures did punctual them of the value of ownership.

In crypto, 1 of the mantras is "not your keys, not your coins," meaning that rightful possession of tokens comes done the custody of the corresponding backstage keys. DEXs similar Uniswap and SushiSwap are peer-to-peer platforms wherever transactions hap straight betwixt traders, wholly cutting retired intermediaries like banks and brokers. That means that users clasp custody of their tokens by ne'er handing implicit their backstage keys.

DEXs destruct centralized intermediaries from fiscal transactions specified arsenic trading, holding, and transferring assets done programmable pieces of codification known arsenic astute contracts. These contracts are written connected a nationalist blockchain like ethereum, and execute erstwhile definite conditions are met, negating the request for a cardinal intermediary. In essence, with DEXs, you spot code, and with CEXs, you spot people.

"You ne'er nonstop your bitcoin to an exchange. Your bitcoin stays successful your ain wallet, meaning you person implicit custody of your coins," explained Taihuttu. "You link to a DEX, and by making that connection, you commercialized retired of your ain wallet."

That nuance of ownership is critical.

"If the DEX collapses, it doesn't matter, due to the fact that the bitcoin are ever successful your ain wallet," helium added.

From the beginning, Taihuttu said helium could archer thing was "really off" with FTX, adjacent though it was 1 of the biggest CEXs connected the satellite earlier imploding successful November.

"Too galore influencers were paid excessively overmuch wealth to beforehand that one," continued Taihuttu, who added that reliable crypto products and companies typically don't trust truthful heavy upon personage endorsements.

The Dutch begetter of 3 had learned his acquisition successful 2017, erstwhile helium mislaid 4 bitcoin to a hack of a centralized speech known arsenic Cryptopia.

"From that moment, I was ever searching for alternatives," helium explained.

People who take to clasp their ain cryptocurrency tin store it "hot," "cold," oregon immoderate operation of the two. A blistery wallet is connected to the net and allows owners comparatively casual entree to their coins truthful that they tin entree and walk their crypto. The trade-off for convenience is imaginable vulnerability to atrocious actors.

"Cold retention often refers to crypto that has been moved to wallets whose backstage keys – the passwords that alteration the crypto to beryllium moved retired of the wallet – are not stored connected internet-connected computers, truthful that hackers can't hack into the machine and bargain the backstage keys," said Philip Gradwell, main economist of Chainalysis, a blockchain information firm.

Thumb drive-size devices similar a Trezor oregon Ledger connection a mode to unafraid crypto tokens "cold." Square is besides building a hardware wallet and work "to marque bitcoin custody much mainstream." The Taihuttu household has mostly relied connected acold retention to safeguard their tokens for the past six years.

Currently, the Taihuttus support 27% of their crypto holdings "hot" connected centralized exchanges similar Bybit, a level which Didi says is transparent and backed by existent assets. He besides keeps immoderate tokens connected Kraken, since it is 1 of the oldest exchanges. Didi refers to this crypto stash arsenic his "risk capital," and helium uses these crypto coins for time trading and perchance precarious bets.

The different 73% of Taihuttu's full crypto portfolio is successful acold storage. These acold hardware wallets, which are dispersed astir the globe, clasp bitcoin, ether and immoderate litecoin. 

The household declined to accidental however overmuch it holds successful crypto, but they did disclose that they are shifting $1 cardinal worthy of bitcoin, ether, litecoin, polkadot, and different tokens from these hardware wallets and centralized exchanges to decentralized exchanges.

Tainuttu says helium yet wants to determination 100% of the family's crypto savings into DEXs and put 15% of their nett worthy into upstart DEXs since helium sees these decentralized platforms arsenic the centerpiece of the adjacent bull run. When asked wherefore helium is going each successful connected DEXs alternatively of keeping his crypto cold, Didi pointed to easiness of access.

DEXs let Didi to link the crypto helium safeguards connected thumb drives successful hiding spots each implicit the satellite straight to the platform, meaning that helium tin marque trades acold much easily, portion inactive protecting his tokens.

"Our superior present is truly hard to usage successful trading, due to the fact that past I request to nonstop my bitcoin from my ledger into an exchange," explained Taihuttu.

The fiscal privateness offered by DEXs is besides a immense incentive.

"You're trading from an anonymous ledger connected an speech arsenic an anonymous entity," helium said. "You get afloat entree to non-KYC trading successful a decentralized mode connected a DEX."

Taihuttu isn't unsocial successful shifting his absorption to DEXs. Following the FTX bankruptcy, Trezor's sales gross reportedly jumped 300% and billions of dollars successful bitcoin fled exchanges. Meanwhile, Multicoin Capital, a crypto concern firm, told constricted partners that 7% of its assets are likewise stored cold, successful self-custodied multisig wallets.

Centralized exchanges are a large portion of what helped spur crypto adoption by offering caller investors an casual onramp.

"Centralized exchanges person played a captious relation successful the adoption of cryptocurrency," explained Auston Bunsen, co-founder of QuikNode, which provides blockchain infrastructure to developers and companies. "With their maturation came the industry's growth."

But successful the past fewer years, and particularly successful the past six months, decentralized exchanges person grown successful popularity arsenic investors look to commercialized successful a mode that protects their funds.

Boaz Sobrado, a London-based fintech information analyst, sees 3 main advantages to DEXs: they are non-custodial, meaning you don't person to spot idiosyncratic (like Sam Bankman-Fried) to store your funds for you; they are open, meaning anyone successful the satellite tin participate; and transaction information is much wide available, reducing the hazard of insiders getting an borderline from cognition lone they have.

Uniswap has facilitated much than $1 trillion successful trading measurement from astir 100 cardinal trades since launching successful 2018, according to a probe enactment from Bank of America connected June 13. Rival DEXs similar SushiSwap and PancakeSwap person besides gained traction among traders, though Uniswap inactive accounts for astir 51% of each trading volumes connected DEXs year-to-date.

While DEXs play an important relation successful the integer plus ecosystem, determination are a batch of reasons wherefore these decentralized platforms won't eclipse their centralized peers immoderate clip soon, according to Alkesh Shah, Bank of America's Head of Web3, Crypto & Digital Assets Strategy.

"Centralized exchanges supply a one-stop store for investing oregon trading integer assets with idiosyncratic to talk to if thing goes incorrect – this volition beryllium captious for mainstream adoption beyond the aboriginal adopters of today," Shah told CNBC.

Shah said that investors are apt to similar exchanges that are much transparent astir their operating practices, adding that regulated and transparent CEXs are apt to beryllium important for mainstream adoption long-term.

Bank of America said successful its June enactment that it expected Uniswap, successful particular, to look regulatory scrutiny. The slope said it besides saw the imaginable for the Securities and Exchange Commission to necessitate its registration arsenic a National Securities Exchange oregon broker-dealer.

"Uniswap whitethorn beryllium incapable to comply with regulatory requirements, fixed its inability to verify idiosyncratic identities, instrumentality AML/KYC (anti-money laundering/know your customer) requirements oregon supply the indispensable disclosures for the thousands of tokens listed connected its platform," continued the probe note.

Some centralized platforms are splitting the quality by offering DEX-type services, but it is unclear what benignant of regulatory blowback they mightiness yet face.

Meanwhile, Sobrado tells CNBC that astatine this stage, astir DEXs suffer money, meaning they mightiness not beryllium sustainable.

DEXs are besides automated marketplace makers, meaning that the speech pools liquidity from its users and past uses an algorithm to terms the assets wrong that pool. Sobrado says that this exemplary has proven remarkably resilient — but is unproven versus orderbook exchanges similar Coinbase.

Under it all, the Bitcoin Family inactive believes that the archetypal cryptocurrency is simply a coagulated bet. They accidental they haven't been swayed by the turmoil of the past six months.

"We look to get that acquisition each bitcoin cycle," said Taihuttu. "It was Mt. Gox, it was banning bitcoin successful China, it was banning mining. There's play each time."

He continued, "But looking astatine the existent situation: We person a immense warfare going on, we person a immense fiscal crisis, we person FTX, we person Celsius, we person a batch of carnivore marketplace signals. I deliberation that bitcoin is truly holding beardown astatine $16,800. For me, bitcoin is inactive doing cleanable and inactive doing what it ever does: Being a decentralized currency that is usable by each radical each implicit the world."