Is It Safe to Keep All Your Crypto in One Exchange?
Cryptocurrency is a hot topic these days. There are many coins to invest in and many different exchanges to choose from, but one question that always arises is whether it’s safe to keep all your crypto on one exchange.
It may seem like a good idea at first glance, but there are some risks you should be aware of before making this decision for yourself. Security breaches happen more often than you think – just ask the people who lost their Bitcoin when Bitfinex was hacked in 2016. If you want to make sure your cryptocurrency investments stay safe, consider spreading them out across multiple exchanges so your money won’t be lost forever if something were ever to happen with one of them.
So in short, no, it’s not safe to keep all your cryptocurrency with one exchange. And in this blog post we’ll analyze why it’s not safe, and provide some alternatives to storing your money safely.
More Vulnerable to Hacks
In recent years, the rate of cryptocurrency hacks has been on a steady incline. It’s hard to believe, but over a billion dollars worth of crypto assets have been stolen since 2011, with the number rising every year. Hackernoon reports that $12.6 billion has disappeared when these assets are adjusted for inflation.
The cryptocurrency market is a volatile one with enough risks to keep investors up at night as it is. But when you add hacked bitcoin exchanges into this mix, it becomes clear that maybe storing all your money in a single exchange isn’t the right move. If you, you’ll have to start worrying about something else – your hard-earned money being stolen before it even has time to grow. So for peace of mind, it’s a good idea to diversify how you’re storing your crypto.
Trouble From Inside The Exchange
The QuadrigaCX controversy is a perfect example of how things can go wrong in the world of cryptocurrency exchanges that don’t include hacking. The founder’s death, where he took all the private keys with him, leaves this company with no way to access $190 million worth of user funds. Many users were understandably furious about it all because they don’t know when or if their holdings will ever reappear again.
There was also the Mt. Gox debacle. Mt. Gox was a cryptocurrency exchange that operated until 2014. The company’s founder, Jacob McCaleb, is suspected of having lost 650K bitcoins in two years due to repeated hacks on his system. All while he remained oblivious (or perhaps unconcerned, but let’s hope not) about it.
How to Spot a Good Exchange
But all this isn’t to say crypto exchanges are inherently bad. There are some good ones out there that do take strides to keep your money safe. Just remember that cryptocurrencies exchanges are, first and foremost, financial marketplaces. They are not cybersecurity companies. As such, they will be vulnerable to mistakes from time to time.
But there are measures you can take to spot good crypto exchanges over bad ones. First, secure exchanges have a valid HTTPS certificate. If you see the lock in your browser’s address bar, it means that all of their information is encrypted and secure. Second, a good exchange should have a stringent password policy. You’ll be asked to use both capital and lowercase letters, random symbols, and numbers. This makes it much more difficult for someone to guess your password by using thousands of passwords until they find your account’s correct one.
2FA (2-factor authentication) is critical for account protection too. Secure exchanges offer multiple 2FA methods, including software, SMS, and hardware devices. A great way to protect your account from other locations is by safelisting specific IP addresses. If enabled, it automatically blocks logins coming from any computers or locations not on the list of authorized locations or devices.
Some exchanges offer other types of security features too. Other than the ones mentioned above, see what other kinds of security features an exchange offers. After all, more security, when it comes to crypto, is never a bad thing.
Finally, let’s talk about insurance. Cryptocurrencies are unregulated, and most platforms do not report their activities to the FDIC (Federal Deposit Insurance Corporation). However, some of them go an extra step by protecting investors’ money. Just be aware that this only covers losses that happen across all transactions on one platform. If any individual transaction goes wrong, there will be no protection for that loss. Be sure to ask about this up-front if you’re curious about it.
Alternatives to Cryptocurrency Exchanges
Of course, if you prefer not to store your cryptocurrency with exchanges and want to handle the management of it yourself, then a cryptocurrency wallet could be just the thing you’re looking for.
A cryptocurrency wallet is a digital storage program for your public and private keys designed to send/receive digital currencies. These wallets interact with the blockchain database system that keeps track of all transactions to make sure you have enough funds before making purchases or sending money.
If you’re interested in storing your cryptocurrency in a wallet, let’s look at the two types, hot wallets (otherwise known as online wallets) and cold wallets (otherwise known as offline wallets).
A hot wallet is a type of internet-connected device that generates the private keys to your coins. However, the issue with this is that it poses security risks, and you cannot access them from anywhere without being online. But hot wallets give you quick access and transfer of funds. If you are trading and spending cryptocurrencies regularly, a hot wallet may be a great solution for you.
A hot wallet is like a checking account, so think of it that way. It’s meant to be a place where you can spend your money, not store it. And it should only be used for small amounts of currency because financial wisdom tells us most of your money should be held in an investment fund or savings account.
Cold wallets are a person’s best option for securing their investments. These wallets do not have an internet connection and so the risk of being compromised is much lower than online hot wallets. The simplest way to describe these types of wallets would be offline, hardware-based options that help keep your money safe from hackers.
You can liken cold wallets to your savings account. Most of your money (or in this case, cryptocurrency) should be placed in this type of wallet for long-term gains. If you’re looking to buy cryptocurrency and have it for a long time, this is the wallet for you.
When it comes to storing your cryptocurrency, you may be tempted to keep all of it in one place. However, this is a risky proposition as the more coins are stored on an exchange, the more vulnerable they become if that exchange gets hacked or suffers from internal issues.
There are many different types of exchanges out there with varying degrees of security, so before deciding where to store your crypto always do some research first. One way to find good exchanges is by reading reviews about them online. Another option would be talking with someone who has the experience and asking what their opinion is firsthand.
The other option would be using Unbanked, where we’re building a decentralized platform with crypto as its currency! Sign up today for a free account, get started trading crypto, and be part of the future of commerce!