Crypto exchanges are platforms where you can trade your crypto assets for cash and vice versa. Although they all serve the same basic purpose, they come with different designs and features. However, none of them is safe for storing your crypto assets for a long time.
Billions of dollars have been lost on crypto exchanges and other platforms due to different kinds of attacks. This only goes to show how unsafe it is to keep your crypto on any exchanges. There are several reasons why this is dangerous, and here are some.
Hacks and other Attacks
Exchanges suffer different forms of attacks every time, the most common being hacks. Criminals can hack into an exchange and access the funds held by the exchange, most of which belongs to customers and not the platform itself. This means it is your funds that will suffer in such an attack.
In the first quarter of 2023 alone, about $950 million dollars was lost to hacks and scams. Even though this dropped from 2022 when $1.3 billion was lost in the first quarter, it is still a significant amount. This calls for utmost caution.
Unfortunately, you can’t predict the next exchange to suffer an attack, so it’s wiser to not store your hard-earned crypto on it. Even the most fortified of exchanges can suffer an attack because hackers continue to upgrade their technology.
Exchange Shutdown
Even if an exchange doesn’t suffer an attack of any kind, it is possible for it to shutdown on its own. This can be as a result of the death of the CEO as is the case with QuadrigaCX. He was in charge of the private keys to the entire $190 million in customer funds on the exchange, so all customers lost their funds with no chance of recovery.
While this is a sad incident, it isn’t only death that can cause such losses. The team may also decide to shutdown and run away with your funds, and again, there’s no hope of recovery if that happens. This is commonly referred to as a rug pull on decentralized exchanges.
The creators of the exchange simply withdraw the liquidity – which the exchange needs to survive – and then leaves users with worthless tokens. A similar thing can happen to a centralized exchange like FTX which was one of the crypto giants, so watch out.
What You Should Do
Instead of storing your cryptocurrencies on an exchange, simply hold them on a personal wallet. This is any wallet that you have access to the private keys, because if you don’t own the keys, it’s not your funds. You can use a software wallet such as Exodus, or a cold hardware wallet like Ledger Nano S.
You should copy the private keys and store in a safe place so that you can use them to recover the wallet should anything go wrong.
Another way is to copy the recovery key phrase or seed and securely keep. You can always recover a personal wallet using any of them, but you can’t recover an exchange wallet by any means if anything should go wrong.
You should typically use a cold wallet which can be either hardware or a paper wallet. Software or hot wallets are more vulnerable to attacks since they are perpetually online. Cold wallets on the other hand are always offline.
You only connect it to the internet when you wish to carry out a transaction, after which you disconnect it and it goes back to being offline. This massively increases the security of this category of wallet. In fact, paper wallets don’t need to be connected to the internet if you just wish to add more assets to it.
Conclusion
These are reasons why you shouldn’t store crypto assets on an exchange. Unless you’re actively trading the assets at any time, there’s no reason to hold them online, and the sooner you appreciate this, the better it will be for you.
Remember, if you don’t control the keys, it isn’t your assets.
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