Last week, we saw another hack that occurred on a centralized exchange. Cogni is a decentralized crypto platform, which puts the control in the customers hands. As opposed to “Centralized Exchanges” (CEXs), Cogni removes much of the unwanted risk from the customer, which revolves around a number of areas. Here are some of the key risks associated with centralized exchanges:

1. Security Risks:

Hacking: Centralized exchanges are attractive targets for hackers due to the large volumes of cryptocurrencies they hold. If a CEX is compromised, users' funds can be stolen.

Inside Jobs: Insider threats from employees or contractors of the exchange can lead to unauthorized access and theft of user funds.

2. Custodial Risks:

Trust Dependency: Users must trust the exchange to safeguard their assets. If the exchange becomes insolvent or engages in fraudulent activities, users may lose their funds.

Exit Scams: Some exchanges have disappeared suddenly, with their operators absconding with user deposits.

3. Regulatory Risks:

Compliance Issues: CEXs must comply with various financial regulations, and changes in regulations can impact their operations or lead to user data being shared with authorities.

Legal Actions: Legal actions against the exchange can result in freezing of assets, user funds being seized, or the exchange being shut down.

4. Loss of Control:

Users do not have control over their private keys on centralized exchanges, which means they don't have full ownership of their assets.

5. Market Manipulation:

In some cases, centralized exchanges have been accused of facilitating market manipulation by trading against their own users or providing preferential treatment to certain traders.

To mitigate these risks, Cogni provides its users with a non-custodial (‘Self-Custody’) wallet, which is not within our control, so our customers never worry about losing access to their assets. People should exercise caution when selecting a centralized exchange, consider using hardware wallets or other secure storage methods for long-term holdings, and stay informed about the regulatory environment in their region.

Diversifying holdings across multiple exchanges and using decentralized exchanges for certain transactions can also reduce risk exposure. Additionally, users should always perform due diligence and research an exchange's reputation and security measures before using it for trading or storing cryptocurrencies.