Similar to how you can store fiat currencies in your wallet or on your bank account, you need a wallet to hold your cryptocurrency. It’s extremely important to do this in the best (and safest) way possible.
Is it safe to hold my cryptocurrency on an exchange? To me the answer to this remains ‘No, it is not’. It’s a common discussion.
Personally, I only store the cryptocurrencies I trade with on an exchange. Crypto I intend to hold for a longer time period, I save in a hardware wallet, or sometimes even in a software wallet.
Why do I think holding cryptocurrency on an exchange isn’t safe?
The main reason I don’t consider a (centralized) exchange as a safe place to hold your cryptocurrencies, is because you are essentially storing your funds with a centralized party, meaning you are not the directly have possession over your cryptocurrency.
There have been times where an exchange got hacked, did an exit-scam or even where your personal account got hacked on an exchange. To me, the odds of that happening are higher than the odds of your private wallet getting hacked.
A common phrase in the space is: Not your keys, not your crypto. Meaning, if you don’t own the private keys to your funds, you are not the owner of your cryptocurrencies.
(Image from Ledger)
A hardware wallet is a wallet such as Trezor, Ledger and other options. I would recommend using this if you hold over >$1,000 worth of cryptocurrency long-term. As the price of these hardware wallets are about $50-100. They are easy to use and instructions are provided.
However, if you don’t want to purchase a wallet, you could use one of the reputable software wallets. Which is essentially a downloaded wallet on your computer, to which you get a back-up phrase (save this somewhere safe) in case your computer doesn’t work anymore or gets stolen.
Examples of these wallets are Atomic Wallet, Exodus, and Jaxx.
When you create a wallet, you will receive a public address and a private address. The public address can be seen as your public bank account number, which you can send to other people so that they can deposit currency into your account (but also view your balance publicly on the blockchain). The private address can be seen as your unique pin code, you should never share it with anyone and keep it safe.
There are also digital options. For example, wallets that are integrated into your web browser, such as MetaMask. I am a big MetaMask user as the browser extensions enables me to directly connect to various decentralized applications and platforms. For example, Uniswap, a decentralized exchange I used to transact Ethereum Network-based (ERC-20) cryptocurrencies without relying on any intermediary and without having to first pass a know-your-customer (KYC) test.
If you are a trader, then yes, you can hold some cryptocurrency on an exchange. If you’re a holder then please do not store them on an exchange. Instead, take 5–10 minutes to set up a wallet so that you are always the direct owner of your cryptocurrency. Please do make a good back-up and hide it well.
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This post is for informative purposes only, I’m not a financial advisor and I currently do have a position in cryptocurrency. I have not been paid for this post, this post is out of personal interest. I write my Publish0x posts because I enjoy doing so, and want to help educate people on cryptocurrencies and blockchain technologies for free.