It is most certain, that it is much safer to secure your crypto in a wallet. You can check our previous article on how to set up a cryptocurrency wallet. In this article, we will review why exactly it is not safe to keep your coins on the exchange.
What are the risks?
Since the exchange serves as trading software, it may seem more convenient to keep your crypto on the exchange during the active trading day. However, if you choose to leave your assets on the exchange for a long period of time it may cause you some problems. It is especially true if you are planning to hold an entire portfolio. Surely, you do not want to see your assets being stolen. First, let us investigate 3 main issues about cryptocurrency exchanges:
They can place certain limits on how much you can withdraw per day
It is one of the internal issues, that may occur when dealing with the exchange. The main advantage and core idea of cryptocurrencies is that they are not governed by anyone and no one can place any kind of limits on how you choose to deal with them. So, basically, if you store all your coins on the exchange they can be considered as a third party that can put restrictions on how much you are able to withdraw. This problem disappears when you transfer your assets to a crypto wallet.
An exchange has the right to freeze or even close your account
Well, this does not seem right, isn’t it? You deposited your fiat currency to the exchange and bought yourself some Bitcoin. Few days pass and you see your account being frozen. Why is it so? Well, let us take Poloniex exchange as an example here. They are US-based leading cryptocurrency exchange nowadays. In May this year, they announced that they will be freezing all unverified accounts. It means that all customers should provide basic Identification documents to activate their accounts. This led to huge mess back then, as already existing accounts found itself frozen suddenly with clients cryptos being locked there. Many claim that Poloniex should have warned its users in at least a couple of months before implementing this rule.
Many exchanges have been hacked in the past.
This can be described as the main concern when dealing with an exchange. No matter how secure it claims to be, they will always be in danger of hackers attacks. For instance, in February 2018, a reputable Italian exchange BitGrail announced 195 million worth of Nano (XRB) was stolen through a hack. BitGrail does not consider itself responsible and in the end, no compensations were received by its customers. On the other hand, if you choose to store your assets in a wallet, the only way for hackers to get access to your money is if they find your private key.
Exchanges often place minimum amount that can be applied for withdrawal
All cryptocurrency exchanges place minimum amounts that can be withdrawn from your account which may cause you some headache. For instance, if you bought small amount of Ether (let’s say around 0.05) and want to withdraw it, you will not be able to do it if the minimum amount that can be applied is 0.1 ETH. You will be forced to buy some Ether in order to reach the minimum amount.