16 April 2021
A cryptocurrency exchange is a marketplace that enables its users to trade cryptocurrency for assets such as fiat money or other cryptocurrencies. The online platform acts as an intermediary between the buyer and the seller, wherein, the exchange makes money through transaction fees or commissions. However, to make the transactions, the users have to place their cryptos in the exchange’s wallet.
Cryptocurrency is often known for its risk of volatility, but that is not the only risk involved in the crypto space. One of the other major responsibilities of cryptocurrency is keeping the private key safe. A private key is a complex form of cryptography that enables access to your cryptocurrency. If you don’t have access to your private key, you don’t have your crypto.
To connect the dots between a crypto exchange and private keys requires leaving your cryptocurrency and private keys on the exchange, and it comes with risks since the exchange is prone to be hacked, and possibly all your cryptos could get stolen.
In this blog, we will discuss If Leaving Crypto In Exchange Is Safe?
With active trading, it is apparent for the traders to keep their coins on an exchange, but what about the ones that are not actively using? It is essential for those users to not place their holdings on an exchange for too long. Keeping your digital assets on exchange’s wallet comes with risks; thus, storing your crypto for a long time isn’t a good idea especially when there are plausible chances of exchange being compromised. Just like how great power comes with great responsibility; similarly, you need to take measures when you take your private keys off an exchange. Either way, you are responsible for keeping your coins safe and secure.
Also Read, Everything About Bitcoin Wallet & Address!
According to Hackernoon, since 2011, over 60 major cryptocurrencies were hacked, resulting in a loss for the investors of about $12.6 billion. It is 2021 now, while the article was published in 2018, ever since many such hacks have occurred.
In September 2020, KuCoin officially announced that they had detected large withdrawals since September 26, 2020. As per the internal security audit report, Bitcoin, ERC-20 tokens, and other tokens were transferred from KuCoin’s hot wallet. It was considered the third-largest crypto hack after Coincheck and Mt. Gox. These are not the only hacks that crypto space has faced, other top cryptocurrency exchanges have faced similar challenges.
And if this was not enough, let us go back to the controversy of QuadrigaCX, wherein, the users allegedly lost access to their funds of $190 million when the owner passed away with the private keys.
The reason why exchanges are prone to hack is that they have billions of dollars worth of cryptocurrency. Exchanges are working on making their platform secure from the hacks, but let us not forget that it is still a risk and who is to tell that it might not happen, moreover, no exchange guarantees top-notch security especially if there is a large sum at stack.
Storing your coins on an exchange isn’t ideal for several reasons, such as, it lacks ownership, it is unregulated, and then there’s the hacking risk.
But on the other hand, you do need to trade and make your transactions, so what is it that you can do?
- Firstly, use a platform that is a reliable, reputable, and highly secure exchange, instead of simply using a never-heard exchange.
- Many exchanges provide FDIC reporting regulations to secure the investor’s funds.
- Check for the valid HTTPS certificate when looking for an exchange, as every established exchange will have it. Also, your browser will confirm it by displaying a lock in the address bar.
- 2FA - Two-Factor Authentication plays a critical role, so you should check whether the exchange is offering 2FA security.
- Cold storage is another way to secure your coin, since it is difficult to hack an offline wallet; hence, you should check whether the exchange is offering cold storage.
- You can also look at whether the exchange is providing the option to whitelist the withdrawal addresses.
- The other security tools that exchanges can offer are multi-factor authentication, alerts, email encryption, SSL/TLS encryption, multi-signature, and so forth.
You can take precautions but there’s always uncertainty, thus, it is always ideal to only place your crypto holdings on an exchange if you are trading. Otherwise, you can use other tools to store your holdings, such as - private wallet, non-custodial wallet, offline wallets, a hardware wallet, or a paper wallet. Your cryptocurrency is only safe when you take the precautions and the methods you use to safeguard.
Disclaimer: The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice