Is it safe to keep my cryptocurrency in an exchange?

Where should you store your cryptocurrency? It may seem like a silly question, as cryptocurrencies, such as Bitcoin, are strictly digital currencies. But it is a very important consideration because it is a matter of the security of your assets.

You can either store cryptocurrency with the exchanges you use or store your cryptocurrency in cold storage, also referred to as hardware wallets. There is a time to store on a bitcoin exchange, and there is a time for cold storage as well.

When you go to sell your crypto on an exchange, you are using a third party to broker a transaction. That means you give custody of your cryptocurrency to another, and your assets become more vulnerable to theft. When cryptocurrency is held on any exchange, it is in third party hands, as opposed to when you use cold storage systems and hardware wallets to store your crypto, which is with you.

Where is your Crypto?

Like or Binance, all cryptocurrency exchanges are third-party services that make it easy to buy, sell, and trade cryptocurrencies. These are a lot like traditional stock exchanges, with the major difference being that you buy and sell cryptocurrencies, like Bitcoin and Ethereum, you are not trading the DOW.

In order for you to make a purchase or a sale on an exchange, you will need to set up an account and a wallet with the exchange. At the point of purchase that you will need to have your cryptocurrency available for exchange.

You see, exchanges are great and an important part of the trading ecosystem because they provide an important service in a safe digital space. Without them, you are vulnerable to dealing with dicey characters. Exchanges ensure that you are trading with others who have funds available, and you don’t have to seek out interested buyers either.

So to answer the original question of where you should keep your cryptocurrency, there is a time and place for both exchange storage and cold storage.

It is best to store your cryptocurrencies on the exchange if you are in the process of making a trade. If you are actively trading, then you will likely want to keep a certain amount of your crypto on a given cryptocurrency and bitcoin exchange for easy transactions.

That said, it’s a good idea to store the cryptocurrency that you are not currently trading in cold storage with a hardware wallet.

Cold Storage and Hardware Wallets

Hardware wallets are important because they use cold storage. Cold storage means that you keep a reserve of cryptocurrency in an offline location, rather than on a bitcoin exchange. Cold storage means that most of your account balance is not present on the webserver or any other computer. If you are dealing with large amounts of valuable cryptocurrency, keeping your held reserve of crypto in cold storage is highly advisable.

Because your cryptocurrencies are digital transactions, digital wallets store your private keys, which you need to in order to authorize transactions from your account. Wallets also keep track of private keys and facilitate sending and receiving your bitcoin and cryptocurrencies -so they are very handy devices.

So is Exchange Storage Unsafe?

Don’t get the wrong idea. It is not “unsafe” to store your crypto on a bitcoin exchange. Exchanges like Coinbase are incredibly safe because they also use offline cold storage. So around 99% of the cryptocurrency and bitcoin held on the exchange is stored offline as well.

Reputable exchanges take your cryptocurrency’s security very seriously, so, hacking into an exchange is no small feat. But just like the bitcoin exchanges, which only keep the necessary minimum amount of cryptocurrency in the exchange, it is advisable to do the same.

But remember, with hardware wallets, you are storing valuable information on a physical device. This means: don’t store it on your computer! Computers get hacked; computers breakdown.

So, always use trusted exchanges, and get yourself a hardware wallet, and keep it in a secure location.

Back to top button