Cryptocurrency is a virtual coin that has gained immense popularity in recent years. Because of its decentralized nature, it has become an attractive investment for many people. However, users need to find the best options to keep crypto in an exchange.
However, leaving your cryptocurrency in an exchange can be a risky decision. It is because exchanges are vulnerable to hackers and other malicious actors who may try to steal your funds.
Furthermore, exchanges can also suffer from technical issues, which may lead to losing funds or other problems. Therefore, it is crucial to understand the risks associated with leaving cryptocurrency in an exchange before doing so.
The crypto world is full of limitless possibilities, and people eagerly invest in digital sites. However, using the exchange platforms to buy, sell or hold digital coins also has limitations with the benefits. Such as using crypto wallets which sometimes can result in the loss of significant funds.
If you are a new investor in cryptocurrency, you might be satisfied by keeping crypto coins in an exchange. Unfortunately, many investors don’t bother to keep crypto in the wallet provided by the crypto exchange. Many wallets also randomly store the crypto in the wallet.
Have you ever thought, is it safe?
Well, you should know that your cryptocurrencies are safe only until the tools you use to store them are safe. However, the exchange-generated wallets are not 100% secure because the hackers have stolen millions of dollars from these wallets, so there is always some risk associated with these wallets.
The safety of a crypto wallet always depends on the type of exchange platform we use to make transactions. So both centralized and decentralized exchange platforms are available on the market. But they are only partially secure.
Centralized crypto exchange platforms provide a middleman-like facility and support crypto-to-crypto and crypto-fiat transactions. This way, it stores a lot of information, such as crucial passwords. KYC information and many more.
So here we will analyze some factors determining why keeping your fund in a wallet is not a good idea.
Risks of Leaving Cryptocurrency in Exchange history
Leaving your funds in the crypto wallet comes with extra added risks. This brief history will provide why leaving your crypto on the exchange can cause you to lose a hefty sum.
Since 2011, over 1.69 billion funds have been robbed due to exchange vulnerabilities and a lack of security with the exchange wallets. If you leave your private key on the exchange platform, there are many possibilities that the key may be stolen and you get robbed by scammers.
As the cryptopedia reported in the recent Cryptopia hack, 3 million to 13 million worth of funds have been stolen, so leaving your crypto on the exchanges can be hazardous. Of Course, Actively traded cryptos are expected to keep on the exchanges. However, any amount other than trading kept in the wallet is not beneficial.
According to a report by cryptolocker, crypto hacking and stolen cases are getting bigger daily. Aside from hacks, there are also other vulnerabilities why crypto wallets are not safe.
Why is keeping crypto in exchange risky?
Let us know why keeping your crypto in exchange is unsafe.
No control over Private Keys
Users should know that the crypto wallet has two keys- a private key and a public key. A public key is like an address of your wallet that you will be required when someone sends coins to you.
On the other hand, a private key works as a password for your wallet. You will need your private key to access your crypto coins. If you forgot your private key, you could take help from the exchange, and they will provide you with a new private key after verifying your details.
It means that the exchange has complete control of your private keys, which implies that your security is getting compromised because sharing your personal information with anyone is never advisable.
A recent case in QuadrigaCX happened where the exchange owner passed away, and thousands of people lost their private keys. Investors have lost $190 million of crypto in this controversy.
Exchange Wallet can get blocked
There might be some occasions when your account gets blocked or frozen without prior notice. Yes, it is frustrating for investors to be unable to use their wallets.
Generally, it happens when the support team recognizes some fraudulent activity or if the exchange itself goes bankrupt. So, users should know that their accounts can freeze anytime without knowing you.
This type of instance we have already seen on the Binance exchange where the exchange has blocked the investors’ account without explaining the reasons. There was also an instance by Coinbase where the crypto exchange froze all the funds on their account during the bull run.
Fees
You will be surprised that some crypto exchanges also charge a minimum fee to keep crypto on their platform. They set a minimum amount of 0.1% to 0.2%, but it may increase anytime if they recognize you are placing more transactions.
No one wants to pay off an irrelevant fee just for storing crypto in the exchange’s wallet. Every crypto exchange has different policies for charging fees, so you need to confirm it from the crypto exchange before placing any transaction.
What is the best alternative?
Well, exchange wallets are mainly known as Custodial wallets, and a custodian wallet always has some risk because they have your private key. Therefore, instead of storing in a custodial wallet, users should prefer using non-custodial wallets.
Non-custodial wallets give complete authority to investors, including private keys. There are many non-custodial wallets available on the Internet. Everyone has the same functionality as crypto exchange, but it provides more security.
Some of the popular non-custodial wallets are MetaMask and Trustwallet. These platforms are the perfect choice for small investors and people making frequent trades. However, you must ensure that only you will have private keys to your wallet; if you lose the private keys, you will lose the whole amount in that wallet.
So these are the best alternatives, but if you are looking for a crypto exchange, you should consider some essential factors. Let us know-
HTTP
Users should know that HTTP is the most secure version of HTTP. All the popular crypto exchanges have a valid HTTP certificate, which assures that your data will not get captured while sending data to a web server.
Two-Factor Authentication
It is a two-step login process where users get more security for their funds. By chance, if your email or other login details are compromised, the hackers will not get access to your wallet.
If the exchange analyzes the activity from another device, they will notify you whether you operate it. So you can deny the request from your mobile device and will secure your wallet.
Whitelist IPs
Some exchanges allow the IP address you use to get logged in to your wallet. It will block all login attempts made by any other IP address. Unfortunately, you can only withdraw your crypto coins from the wallet.
Insurance
Users can also go with an exchange providing fund insurance features. It ensures that you will get reimbursed for your funds if any uncertainty happens. Some popular crypto exchanges offer this feature, such as Coinbase, Binance, Circle, Gemini, etc.
FAQs
What is the safest place to keep crypto?
Cold wallets are one best option to keep your crypto. They are generated offline and consist of a key that is accessible offline.
Q. Is it better to have crypto in a wallet or exchange?
Ans. Keeping your crypto in a non-custodial wallet is a better option if you want to secure your fund.
Q. Why do people keep crypto in exchanges?
Ans. Crypto exchanges function like brokers, giving you tools to trade, buy and sell digital assets. Additionally, they offer various security features that are required to maintain wallet safety.
Q. Are hot wallets safer than exchanges?
Ans. Yes, hot wallets have advanced security features that exchange platforms do not offer. In addition, they provide a more secure way to store digital coins online than any other storage form.
Q. Which crypto wallet is best?
Ans. Different categories of the wallet are based on your experience level and the coin you invest in. For example, a coin wallet is a good choice for beginners, and MetaMask is a good choice for ethereum.
Final words
You can protect your crypto funds if you know the private and public key use. Users can not access these wallets without the private keys. Investors make a lot of money using the crypto exchange platforms; hence they are prime targets for hackers.
The 2017 bull market provided significant benefits to investors. Some of them also become rich overnight. However, few of them cannot resist the fact and brag on social media to friends and family about their investment. It is also why these people are potential targets for robbery, theft, and kidnapping.
Regardless of the security measure that crypto wallets claim to offer, You should only partially trust them.
Before keeping significant funds in the crypto wallets, remember no tool is entirely secure, and no wallet is altogether safe. Issues with these platforms show the most when you expect the least. Therefore it’s essential to make decisions wisely to protect funds from theft.
