So you just got started with this whole cryptocurrency extravaganza and you're slightly more confused than the sum total of a mental hospital put in charge of filing a former representative's tax paperwork. You don't exactly know what you're doing, but you have a freshly installed wallet, and this so-called COINBASE organization sounds legit. So you do the whole rigamarole of surrendering your identity, giving out your financial information, and submitting a pay order for some cryptocurrency.
Now it's at about this moment that a faint memory from ages olden begins to find its footing in your medication-addled mind. An old token of wisdom that finds its way into your memories once more, passed down to you from the misfortune of those who came prior:
"If you don't control your keys, then you don't control your cheese."
Realizing the wisdom of this epiphany, you make the fateful decision to press the "withdraw to external wallet" button on your dashboard. And it's right about here that you wake up to find that a few hours have passed and the paramedics are surgically reattaching your jaw to the rest of your skull after it'd been excavated from the floorboards in the spot that you'd dropped it. As you recollect yourself, the first conscious thought to pass between your ears is undoubtedly:
"What in tarnation? Are the fees actually that high?"
Well, yes.
Let's take a look at the fee schedules for a couple of centralized distributions, each one collected from the faraway corner of their respective website and transposed from their fine print into something remotely legible to the human eye. Because why would an exchange want anybody to read that until long after they've parted ways with their money, am I right?
Here's Bitstamp:
Notice the trend here where deposit is always free of charge, while withdrawal is usually a double digit number. This practice encourages people to deposit their currency, but discourages removing it. I'm genuinely concerned when the minimum withdrawal fee for Etherium surpasses what I might've been willing to part ways with on my very first go at cryptocurrency.
But maybe it's a fluke?
Here's Binance:
That sure does look rough. If I wanted to buy the minimum amount of Etherium and transfer it to my own private wallet, BINANCE would take about 65% of the goods they just sold me in order to do that.
Here's Paxful:
That's right, if you want to withdraw anything less than twenty dollars worth of Bitcoin, you'll have to pony up nearly 50% of it. Unless you want to withdraw $20.01. Then it's gonna cost you literally more than you're withdrawing.
I couldn't really get a proper fee schedule for Coinbase, which is funny, because I'm convinced that I remember them having a table back when I used to use them a couple of years ago. All I could find was the statement that I choose to interpret as "Could not be reached for comment at this time."
Of course, I'm always sketched out by an exchange claiming that it adjusts its fees based on their own estimates. When I hear that, it's a little like hearing that somebody's willing to sell you a house at a price range that's based on their own personal appraisal.
It's right around here that we get at the heart of the matter. Of course Coinbase is more than happy to offer you cryptocurrency withdrawals at a price point that they think is reasonable. Any centralized crypto exchange is willing to do that, because they're the ones offering the service to you. And it's not exactly hard to keep the withdrawal fees high, either -- as the value of cryptocurrencies boom, exchanges need only neglect to adjust their fee schedules in order to turn a profit. 0.0004 BTC is $22.57 now, sure, but just a year ago, it was only $2.87. By "forgetting" to lower it, and neglecting to make it a percentage rather than a flat rate, centralized distributions are able to reap massive sums from naive users. I've observed that the practice gets worse the higher the market cap of an exchange.
I think that it's a common fallacy to believe that the method of operation that a capital enterprise is inclined to adopt resembles anything close to the following:
- Produce a good or service at some cost
- Sell that good or service at some slight markup
- Pocket a meager profit
- Repeat
I hereby dub this business practice the "Mythical Altruistic Capital," primarily because I have yet to see any noteworthy example of its existence in the wild. Rather, I'm inclined to think that the overwhelming majority of business follow a practice more closely resembling the following:
- Produce some good or service for as little as you think you can get away with
- Sell that good or service for as much as you think you can get away with
- Pocket the profit
- Repeat
Anybody who's elected to sell some portion of their crypto in exchange for fiat knows this dilemma. You're not gonna want to snag some profit. Rather, you're going to look to sell for the highest value you can. Hell, anybody who remembers early quarantine when airplane tickets dropped harder than a Parkinson's patient who's into dubstep knows exactly what I'm talking about. In the stock market, all live and die by the motto "Buy low, sell high." For most consumer goods, it's not a stretch of the imagination to embrace the rule of ten -- virtually any item you see on a shelf cost less than 10% its price tag to manufacture. No, there aren't very many exceptions. Yes, there are far more extreme examples. Beats by Dre, for instance, cost ballpark $450 to buy and reportedly cost $14 to manufacture, per unit.
The world of cryptocurrency is still a wild, wild west in the grand scheme of things. The oldest cryptocurrencies are still younger than the articles of confederation were when they were trashed in favor of the United States Constitution. To expect that everybody's going to drop everything they currently use in favor of embracing the majesty and splendor of open-source is optimistic at best, delusional at worst. Hell, I'm a Linux user myself -- at least for some applications -- and I have a really hard time finding a single "Linux Explained" video on youtube that doesn't make me want to shrivel up and evaporate from the cringe.
As it stands right now, the vast majority of cryptocurrency connoisseurs simply aren't ready to embrace decentralization. Sure, we talk big about cryptocurrency being a system of exchange without banks or government oversight, but I have genuine doubt that any single person reading this has bought exactly zero units of cryptocurrency from a centralized exchange or a private company. As it stands right now, the infrastructure is simply lacking. We can all hope for the best and be responsible consumers. We can pass around reviews for exchanges, ensuring that the invisible hand of the market has some level of accountability to it. But this early in the game, it can be a really difficult thing to depend on. Misleading reviews at the hands of the bots, along with the ridiculous amount of expenditure put into promotion makes parsing the trustworthy out of a sea of noise a daunting effort.
So where do we go from here?
I'd like to share with you something I discovered not too long ago. I think it's important.
It's called Bisq.
Bisq is a decentralized peer-to-peer exchange, or a P2P DEX. And when I say decentralized, I mean decentralized. All other projects of a similar category seem to fail in comparison -- Bisq simply has a variety of qualities that distinguish it from any other DEX.
Bisq is non-custodial -- that is, there exists no exchange-based hot wallet. All funds are held either in user-made wallets, or in multi-signature escrow. Even if Bisq was a centralized exchange, it couldn't make withdrawal fees a thing even if it wanted to, as it stands. There's simply no other place to withdraw to or from besides the escrow and the peer you're receiving a trade from.
Bisq is private and secure. As an application, it run on virtually any operating system, with all information sent through TOR. With some fidgeting, I've even managed to get it to work on TailsOS, meaning that you could airdrop a couple of USB sticks into a totalitarian nation and you'd still be able to make exchanges there. Granted, it wasn't easy, but the mere fact that it was possible to begin with astounds me.
Finally, Bisq has no centralized developers, making it a true pinnacle of open source. No one person or group is in charge of updates or changes to Bisq -- rather, decisions are made by way of a DAO, where developers and contributors with BSQ tokens -- a kind of colored Bitcoin token that grants users reduced exchange rates -- collectively vote on major decisions to implement in upcoming updates. Disputes are resolved by mediators and arbitrators who volunteer for the cause.
I'm not usually one to want to endorse products -- mostly because I detest the concept of commercial solicitation in general. And quite frankly, I find the manner in which PUBLISH0X restricts personal promotion while allotting no reservations for practical advertising to be a little off-putting. And I'm certainly not about to recommend Bisq to everybody. The minimum security deposit currently stands at about 0.0065 BTC or $360.00, which may simply be unattainable for new adopters of Crypto. And the methods of payment aren't always as diverse as what other centralized exchanges are able to offer, both for fiat and crypto.
But when I speak my praises for Bisq, I feel less like I'm endorsing a product and more like I'm promoting an idea. I think it's incredible that there can be a peer-to-peer protocol for crypto exchange that's maintained entirely by volunteers, is operated for the profit of nobody, and which is equally valid no matter where you are in the world. And despite its shortcomings, I look forward to seeing where it goes from here, and perhaps more to the point, I look forward to seeing the emergence of other decentralized exchanges like it.
As the cryptocurrency world begins to shift towards widespread adoption, I'm of the mind that large centralized exchanges might just find themselves staring down the barrel. For those who prefer them for their reputation and ease of use, there will always be centralized exchanges -- outright extinction is incredibly improbable. But there very well might be a day when exchanging cryptocurrency with a peer becomes so easy, so painless, so cost effective to do, that exchanging by any other means is nigh impossible to defend.
And I think that day will be an especially exciting one for the world of open source and cryptocurrency alike.
