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If you’ve been in the cryptocurrency space for a while, you’ve probably heard people say that they store and trade cryptocurrencies on some cryptocurrency exchange. But let’s say you’re new to the world of cryptocurrencies. In this case, cryptocurrency exchanges are more like a broker, providing the means to buy and sell all types of cryptocurrencies available on the market.
Although they work with strong security features, they must be connected to the internet at all times, which poses a great risk of various types of breaches and cyber attacks, which can Leaving not only your crypto assets in a vulnerable position but also the entire system on the brink of collapse.Or even bankruptcy in the worst case scenario.
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The most secure cryptocurrency exchanges on the market
Hardware wallets are undoubtedly the best way to keep your cryptocurrency safe, but if you are one of those crypto investors who need to trade and make transactions in short periods, then cryptocurrency exchanges are the best for that. However, remember to only store the digital assets you need on the exchange platform to continue these tasks.
We can compare the security of cryptocurrency exchanges in the market to a three-legged stool. The stool will not be stable if one of the legs is missing or weak. The three legs, in this case, are regulatory compliance, secure technology, and good user experience. If any of these legs are missing, your exchange is unlikely to be secure.
Various factors affect the security of a cryptocurrency exchange, including security measures, records, insurance coverage, and regulatory compliance. Despite the risks involved in holding your cryptocurrency on an exchange platform, there are still some exchanges that are considered safe, including the following:
Binance
Binance is one of the largest and most popular cryptocurrency exchanges in the world. Two-factor authentication (2FA), SSL encryption, and secure cold storage are among the measures it has implemented to protect its users’ assets.
Coinbase
With licensing and regulation in almost every US state, it is one of the most popular exchanges on the market. It also has insurance coverage of up to $255 million to prevent cryptocurrency theft or malicious hacks targeting e-wallets. Additionally, the company uses industry best practices and stores up to 97% of its bitcoins offline, encrypted and geographically separated. It also guarantees insurance coverage for bitcoins stored on computers online.
twin
In Gemini’s history, we have never experienced a major hack. There are insurance policies in place to cover losses from hacks and security breaches. As one of the largest cryptocurrency exchanges, Gemini is subject to more regulatory bodies than most of its competitors, including the New York Department of Financial Services.
Kraken
Kraken is an American cryptocurrency exchange with a strong reputation for security and regularly tests its systems for vulnerabilities. In addition to using cold storage for user assets, it implements several additional security measures, including two-factor authentication and PGP encryption of sensitive system-level communication information and data.
However, it is important to note that even the most secure exchanges can still be vulnerable to hacks and other security threats. When using any cryptocurrency exchange, you should use strong passwords, enable two-factor authentication, and have a reliable hardware wallet to store any remaining digital capital you have that you don’t need to keep on the exchange. Because we don’t want to expose any unnecessary cryptocurrency, right?
Is it safe to keep cryptocurrencies on an exchange?
Holding cryptocurrencies on an exchange is very convenient for trading but it comes with security risks. A hacking incident, security breach, business malpractice, or failure to manage funds properly can result in the loss of your assets. For example, hackers can steal cryptocurrencies from multiple accounts if they successfully breach the security, or the exchange could go bankrupt, causing users to lose their cryptocurrencies.
Unlike currencies regulated by governments, cryptocurrencies are not highly protected by the legal system. There is little guarantee that you will get your crypto funds back if an exchange is hacked or declares bankruptcy. Therefore, the best course of action is to store most of your crypto assets in a hardware wallet and use the exchange platform to hold the amount of cryptocurrency needed for transactions.
Should you keep your cryptocurrencies on an exchange?
The short answer is yes, but only the amount you allocate for trading and transactions. Remember that your private keys are subject to many variables, such as internal policies, security incidents, or legal issues that the exchange may face, which may result in your cryptocurrency being frozen or lost.
Simply put, it is generally not recommended to keep cryptocurrencies on an exchange for an extended period of time, as exchanges can be vulnerable to hacks, fraud, and other security breaches. So, if your exchange is compromised, you want to risk only a small portion of your crypto capital with most of it set aside in a hardware wallet.
Previous Cryptocurrency Exchanges Collapse
Investing in cryptocurrencies is complex and challenging. You need professionals to help you invest and protect your money wisely. Additionally, due to minimal regulation in the cryptocurrency industry and sometimes lack of top-notch security measures, cryptocurrency exchanges have collapsed several times in the past, causing many users to lose their money.
Here are some examples of cryptocurrency exchange collapses that have occurred in the past.:
Mount Gox
For many years, Mt. Gox was the world’s largest cryptocurrency exchange, handling over 70% of all Bitcoin transactions. However, in 2014, the Bitcoin exchange suffered a massive security breach and lost 850,000 Bitcoins worth hundreds of millions of dollars. Users never got their money back after Mt. Gox declared bankruptcy.
Cryptsy
Cryptsy was a popular cryptocurrency exchange that operated between 2013 and 2016. A security breach resulted in the loss of millions of dollars worth of cryptocurrencies in its last year of operation. After the exchange went bankrupt, many users have yet to recover their funds.
Quadriga CX
QuadrigaCX was launched in 2013 and is a Canadian cryptocurrency exchange. After the death of Gerald Cotten, the founder of the exchange, in 2019, it was discovered that he was the only one who had access to the exchange’s cold storage wallets, which contained most of the cryptocurrencies, leading to the death of the cold wallet password. As a result, many investors lost their money because their funds were no longer accessible.
Fatal
FTX, the world’s second-largest and fastest-growing cryptocurrency exchange, collapsed overnight in 2022. In addition to the devaluation of FTT (FTX’s native token), Ethereum, and Bitcoin, the collapse of FTX and FTX.US was caused by a lack of liquidity and mismanagement of funds, followed by numerous withdrawals from distressed investors.
traveler
Once considered a big fish in the crypto industry, Voyager had agreed to sell its assets to FTX after struggling with legal and regulatory issues. But since the collapse of FTX, Voyager has finally struck a deal with Binance, which agreed to buy Voyager’s remaining assets at a much lower price, allowing its customers to withdraw their funds.
Celsius
Celsius Network was founded as a cryptocurrency experimental bank, and the cryptocurrency market lost nearly $1 trillion after it collapsed. When Celsius Network declared bankruptcy, its network froze all withdrawals and transactions, costing its customers $4.7 billion.
The above are just a few examples of cryptocurrency exchanges that have either collapsed through a long and painful process or overnight, resulting in massive losses of crypto assets. In light of these incidents, storing your cryptocurrency on a cryptocurrency exchange market carries significant security risks that you should consider before placing your cryptocurrency on such platforms.
Physical Wallet vs Stock Exchange – Final Thought
The collapses that have occurred with several cryptocurrency exchanges show that no platform is immune to hacking, and problems can arise unexpectedly. The cryptocurrency industry is still relatively young, and is undergoing radical changes in the market and regulation that fundamentally affect these companies. Therefore, it is difficult to predict how safe your cryptocurrencies will be if you store them on one of these exchanges.
So how can you avoid getting caught in your trading platform’s trap? If it does happen, of course. Well, simply get a hardware wallet, which I and most experts consider to be the safest option for storing cryptocurrencies. Here’s an interesting article about hardware wallets vs. software wallets.
But let’s illustrate this with an example, comparing a physical wallet to an exchange is like comparing a safe to a backpack. You keep most of your belongings in a safe and only put what you need for your daily tasks in a backpack. So, just like a safe, you keep most of your cryptocurrencies in a physical wallet that only you can access, and you keep the rest of your cryptocurrencies in a backpack, in this case, an exchange, which will best allow you to continue your daily expenses and trading.
Here is a complete step-by-step guide on how to: Withdraw in Binance.
The Bitcoin and Material Ether wallets are two of the most secure cryptocurrency wallets on the market, one for Bitcoin and the other for Ether. The wallets come with a 100-year warranty and are fire, shock, hack and flood resistant. They are a great choice if you are looking to store your cryptocurrencies in a safe place.
In short, regardless of your goals and role in the crypto world, a physical wallet is a necessary product to store and protect your personal digital assets away from third parties, and last but not least, keep a portion of your cryptocurrency on the exchange platform only if you need to trade or make transactions.
Would you like to share your experience using cryptocurrency exchanges? Feel free to leave a comment below; we would love to discuss it with you!
