Core Question

With the world record breaking Binance hack, that sparked a question in me. Why do users keep crypto in exchange wallets?

The truth 

The truth is that users shouldn't. But, there are some use cases where using an exchange wallet can be better over a standard hardware or hot wallet and likewise the other way around.

The use cases for exchange wallets

Before we get into the use cases, it is important to mention a few things. First, these wallets are entirely non-custodial. That means you do not own the keys to the wallets. You simply login via email and password or linked accounts.

The benefits:

• Simplicity
• Insurance and safety
• Save money

Simplicity

Say you are active on various earning platforms that pay out in a bunch of different tokens and networks. By using an exchange, you can route every crypto there and very easily swap for one inside the exchange without having to backup multiple seed phrases or managing multiple wallets.

Insurance and Safety

When you use an exchange, you are protected from scams. That means that when a hacker gains control of you wallet, the exchange will cover the amount you lost to the attackers. Another benefit is with regular wallets, losing your key phrase and losing the wallet data stored on your device means that that crypto is inaccessible. But, by using an exchange, if you lose your login credentials, you just contact customer support, provide ID and your new information and you regain control of your funds.

Save Money

When we were talking about how if you had tokens on a bunch of networks and needed one crypto, you would exchange each crypto via a 3rd party exchange (like ChangeNOW or Simpleswap) if using a hot wallet or hardware wallet. Not only will you pay fees to send it, but you will also lose money to the 3rd party exchange. But if using an exchange (like Binance or Coinbase), you pay way lower or no fees at all. And, say you had crypto in a self-custodial wallet and wanted to exchange using the big centralized exchanges, you would pay network fees. So, by having the crypto already in the exchange's wallet, you save money on fees and 3rd party cuts.

So, should you

Unless you are an active trader that trades a lot or you are starting out on your crypto journey and using Publish0x to earn some crypto, then I would recommend using an exchange wallet. That is because being an active trader means you want to save as much on fees as possible. And if you are starting out on crypto, you probably aren't too sure on what crypto you want, so you can hold it all in an exchange until you feel ready and decided on one crypto.

But for everyone else that already knows what crypto they want to accumulate and already have a plan (for example HODL or sell 10% a year or whatever), then using either a hardware wallet or hot wallet like solflare is way better.

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