Celsius, Voyager, FTX, BlockFi... Who's next? Genesis, Gemini, Crypto.com? Maybe one day Binance too? No one knows... So, will you keep all the cryptos that you have patiently accumulated on centralized exchanges like Binance or Kucoin? I have nothing against them, but believe me, it is not safe at all.
What are the risks of centralized exchanges?
Using centralized exchanges comes with some risks:
- Security: Centralized exchanges are vulnerable to cyberattacks due to their centralized nature, which can lead to the theft of users’ funds.
- Counterparty risk: As a user, you are trusting the exchange to handle your funds and transactions honestly and securely. This can be risky, as the exchange could be subject to theft, fraud, or other malicious activities.
- Regulatory compliance: Centralized exchanges may be subject to various regulatory requirements, which can limit the types of assets and trading pairs available.
- Liquidity: Centralized exchanges are often limited in terms of liquidity, as they are only able to facilitate trades between users in their own ecosystem. This can lead to price discrepancies between exchanges. Furthermore, most of them do not have in reserve the total holdings of all their users. Therefore, if all their users decide to withdraw at the same time, they will go bankrupt like FTX. Why would their users do that? Only a tweet could suffice...
How to create your own crypto wallet?
To create your own crypto wallet, you can follow the following steps:
- Choose a wallet: First, you will need to select a wallet that meets your needs. Different wallets offer different features and security levels. For example, a hot wallet through MetaMask or TallyHo is more convenient for daily use, while a hardware cold wallet like Ledger is more secure.
- Download and install the wallet: Once you have selected a wallet, you will need to download and install it on your device. Make sure to check that you are downloading the correct version, as hackers have created fake versions with which they can steal all your cryptos.
- Create a wallet: Once you have installed your wallet, you will need to create an account. You can create an account through a hot wallet like MetaMask by generating a 12 or 24 words seed phrase. Write it on a piece of paper, and store it in a secret and secure place. If you chose a hardware cold wallet like Ledger, you can also use it through a front end like MetaMask, TallyHo or Frame.
- Secure your wallet: When creating an account, e.g., on MetaMask, it is crucial to ensure that your wallet is secure. This includes setting up a strong password, but also ensuring that there is no malware on your laptop or mobile phone, especially if you only use a hot wallet (i.e., with a seed phrase directly exposed to the web through your browser, whereas a hardware cold wallet never exposes your seed phrase to the web).
- Fund your wallet: Once your wallet is set up, you will need to add funds to it by transfering some coins or tokens from a centralized exchange. A wallet will use different blockchains. For instance, if you use MetaMask, it will use EVM (Ethererum Virtual Machine) compatible blockchains, also called networks on MetaMask. You will need the native coin of each blockchain to pay for the gas fees, for instance ETH for Ethereum and all its layer-2 chains (or networks), like Arbitrum or Optimism, MATIC for Polygon, AVAX for Avalanche...
- Start using your wallet: Once your wallet is funded, you can start using it. To stay on the safe side, please do it at first with some small amounts of coins and tokens, for instance 0.01 ETH, and start to explore all the dapps (decentralized applications) on each blockchain, particularly the DeFi (Decentralized Finance) ones like DEX (Decentralized Exchanges), AMM (Automated Market Makers) and lending protocols - e.g. Aave...
Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.
Please find below a few more links to earn a few more coins...
