WHAT IS CENTRALIZED EXCHANGE STORAGE RISKS....?

Centralized exchange storage risks refers to the potential for users to lose their digital assets due to the exchange's custodial nature.

This includes risks from security vulnerabilities like hacking which can lead to theft of funds, and counterparty risks, such as the exchange becoming insolvent or being shutdown due to fraud or mismanagement.

It encompasses risks of frozen funds due to government regulation, operational failures and loss of access to assets...

              TYPES OF RISKS.

Security Risks.

a)Hacking: Centralized exchange are prime targets for hacking because they hold large amounts of funds in one place. A successful hack can lead to the theft of millions of dollars worth of cryptocurrency...

b)Data breaches: in addition to stealing funds, security breaches can compromise sensitive user data, including personal information and history..

Counterparty Risks:

a) Insolvency: if the exchange goes bankrupt or faces financial difficulties,users could lose all their funds,as seen with the collapse of FTX.

b) Mismanagement and Fraud: Exchanges may be subject to insider threats or fraudulent operations, which can lead to lose of user assets..

       Regulatory And Operational Risks.

a) Frozen Funds: Regulatory agencies can order an exchange to freeze user funds, or the exchange itself may restrict withdrawals due to compliance requirements.

b) Operational Failure: Users can lose Access to their Assets due to exchange downtime, technical issues,or other operational failures.

        Custodial Risks.

a) Loss of control: when you store crypto on an  exchange, you do not control the private keys, meaning you entrusting the exchange with the security of your Assets.. 

NOTE:

This is a key difference from self-custody using a personal wallet.