Crypto beginners, and intermediates who haven't learned this yet, you absolutely need to hear this.
I see a lot of people, both here and other places I lurk, talking about how great their exchanges like Coinbase.com, Uphold, etc. are for also being a wallet.
But I can trade so easily! The people cry....
But they hold so many awesome different tokens!! A few brave souls call out....
But they have a really simple user interface!! Someone in the back shouts just as everyone else goes quiet....
But there is a major drawback with hosted wallets you haven't been told yet, or you've been told it in the wrong way so didn't receive the important message behind it: You will likely lose access to your crypto investments, at least temporarily but maybe permanently, if you use your exchange's hosted wallets.
I will let that sink in for a few seconds..................................
Using a hosted wallet such as those I mentioned earlier, or any other exchange's hosted wallet is a bad idea if you have a serious interest in your crypto investments. I learned this lesson myself, thankfully not the hard way, but through research and self-education.
If your funds are in a hosted wallet you can lose temporary access to your crypto if:
- the site comes under any kind of attack that prevents it from functioning or loading such as a DDoS
- the site pushes an update that includes a bug that breaks some functionality - yes testing is a thing, but it still happens
- your internet route to the site's server(s) is physically interrupted - I know it happens from time to time in Australia that the undersea link is bumped or damaged, and some internet functionality is lost
- your internet route to the site's server(s) is otherwise interrupted - DNS issues happen all the time
- the site is hosted in a geographic location that disconnects from the internet - a year ago you wouldn't even have to say something like this, but now that Russia has an internet cut-off switch in place, it certainly is possible
Even worse, you could lose permanent access to your crypto investment if:
- the site is hacked
- the company behind the site folds or otherwise has to stop functioning
- the site is not as trustworthy as people thought it was
There are of course other reasons I have not listed here. The important thing is to know that this can happen - because in reality, while your crypto is on a hosted wallet, you do not actually own it - you just have an IOU from someone else that they will give you that amount of crypto when you want it, if it is available at that time.
There are of course times when it is fine to use a hosted wallet for specific purposes, which basically fall under two categories - anytime you don't care if you lose the crypto it holds, or any time that it will only be temporary.
For example I use Uphold to store some of my BAT for tipping. I don't care if I lose it, because I plan to lose it by tipping anyway.
I have used Coinbase Earn, so of course I've gained some crypto there, which I quickly moved off to my own wallet.
So please, please, I beg you please, if you are truly interested in your crypto investments, don't keep them on your exchange's hosted wallet, get yourself a hardware wallet, desktop or mobile software wallet, or whatever you like, just do not use your exchange to hold your investments.
There are many wallets out there, not all are created equally. I won't tell you which to use, but please do your own independent research, pick the wallet that works best for you, and keep your crypto safe!