Apart from trading cryptocurrencies, you also need to store them. The two most popular ways to do it are by keeping them on your exchange or storing them in your wallet. It’s generally believed that having your money on an exchange is less safe than using a wallet. In this article, we’ll discuss both methods and ultimately decide on the better one.
Storing Your Funds on an Exchange
Exchanges can store your cryptocurrencies. This way is considered convenient as you can easily swap coins and enjoy many other benefits offered by the exchange of your choice.
On the other hand, it’s not very safe to keep your money there. There have been serious security breaches in the past, with thousands of Bitcoin stolen. Surely, it is not something you want to happen to your digital money.
Therefore, the most convenient way to store your digital money is to use a cryptocurrency wallet. Let’s check out how that’s different from using an exchange.
Using Wallets to Store Your Funds
A cryptocurrency wallet is much more difficult to hack into and steal your funds. In fact, it’s virtually impossible to break the code on a wallet. Every theft that has happened was caused by the negligence of wallet owners. In other words, people unintentionally left their private keys somewhere on the Internet, letting criminals access their wallets and steal their money.
Even though cryptocurrency wallets are more secure, they require more responsibility. To access a cryptocurrency wallet, you need to know your private key or a 24-word phrase. These are irretrievable, meaning you need to keep them safe and not forget them. If you lose your key or phrase, you won’t be able to access your cryptocurrency funds ever again. Therefore, it’s extremely important to make an offline backup of your key and keep it well hidden.
This is another reason why some people prefer keeping their cryptocurrencies in online exchanges. If you lose your login credentials, the centralized exchange will offer you to reset your password using your email so that you can gain access to your crypto funds.
What Should You Choose?
Truth be told, almost all reputable online cryptocurrency exchange platforms nowadays have state-of-the-art security protocols. It means they are not as exposed to cybercriminals as they used to be. Most cryptocurrency thefts took place when the entire industry was still very young and exchange operators had little knowledge on security matters.
Therefore, it’s up to you to decide what to choose. However, you have to take several things into account. Let’s take a look at them.
Wallets Are Still More Secure
Even though there are all kinds of security measures in exchanges, wallets still offer the safest way to store your crypto funds. Therefore, even if you want to focus on trading, you shouldn’t take crypto wallets out of the equation. After all, they are easy to use, and most hot wallets are completely free of charge.
On-the-Fly Cryptocurrency Exchanges Offer the Best of Both Worlds
Many decentralized cryptocurrency exchanges don’t even give you an option to store your cryptocurrencies. Instead, they’ll just offer to swap your coins and load them back into your wallet. Every platform that uses this model is widely regarded as a safe crypto exchange. Here you don’t have to leave any sensitive data on the site — only your public keys from wallets to make the trade.
Use Cold Wallets for Storing Big Money
Apart from software wallets, many people use hardware wallets to store their cryptocurrencies. These are devices that usually cost between $50 and $200 (depending on the quality and other features).
The main advantage of cold wallets is that they will add a layer of security to your cryptocurrencies. If we watch security as a spectrum, centralized cryptocurrency exchanges are the least secure, and hardware wallets are the most.
Still, if you want to trade your cryptocurrencies daily (or use them frequently to make any kind of transaction), using a hardware wallet may not be the most convenient option. You’ll always have to connect it to the Internet if you want to swap your cryptos. Therefore, the convenience of trading cryptos is the biggest if you keep them on exchange platforms and the smallest for hardware wallets — quite the opposite from security.
Finally, let’s answer the topic question right away: yes, it’s safe to store your cryptocurrencies on a centralized exchange, but it’s still not as safe as using a wallet. Crypto exchanges do their best to upgrade their security, which is much better than it used to be when the first big breaches started happening. The most secure combo is a hardware wallet + a decentralized cryptocurrency exchange.