It’s Not Possible To Hold Cryptocurrency On A Cryptocurrency Exchange

Samantha Standish
Feb 20 · 3 min read

“You can only hold an agreement to acquire cryptocurrency with a cryptocurrency exchange.”

Photo by Mia Baker on Unsplash

People that purchase “cryptocurrency” on cryptocurrency exchanges keep getting scammed. I’ve written on this topic several times to heighten awareness about how this can be avoided, but I don’t feel that the message is getting across. So this time I’ve put it in plain language. You don’t own cryptocurrency when you purchase “cryptocurrency” on an exchange.

Let me say that again. You have NO cryptocurrency even if your account states that you own $250 in Litecoin. You own no Litecoin while it sits on that exchange. That’s right.

When you buy “cryptocurrency” on a cryptocurrency exchange, you’re engaged in a contract to receive cryptocurrency under the terms of the contract. That’s all. The terms of the contract may be fulfilled or not fulfilled. Until such time as you actually withdraw the cryptocurrency into your own personal wallet over which you have complete control of the private keys, the contract is incomplete, and you don’t have any cryptocurrency. It only becomes cryptocurrency when you control the private keys (to learn more about private keys, click here).

Contracts are as reliable as the people that participate in the agreement. Some companies fulfill their obligations, and some companies don’t fulfill their obligations. This can be due to a whole host of factors — malice, deceit, natural disaster, accident, bankruptcy, and so on. The point is that your acquisition of cryptocurrency requires that you and you alone control the ability to move the currency. If there’s a third party like a cryptocurrency exchange that you have to go through in order to move the currency, you don’t have cryptocurrency. You’re dealing with a contract with a financial institution.

Some people want a third party to “store” their “cryptocurrency” because they don’t feel capable of handling the risks involved in storing their private keys. They want someone to sue if things go sideways. But the nature of the cryptocurrency world is such that you may not be able to find that certain someone responsible for the loss of your “cryptocurrency” in a typical scam situation. For that reason, understand that it’s a risk to keep your “cryptocurrency” on an exchange because it’s really just a contract to receive cryptocurrency that may or may not be fulfilled.

I only have a little bit of petty cash in cryptocurrency, just enough to test out the wallets and the different blockchain ledgers. I’m willing to lose my $10 if something goes awry. But if you’re a serious investor, do your homework. If you’re dealing with an exchange, and you want to keep your “cryptocurrency” there, then find out if they’re insured, look at the reputation of the principals of the institution, check into the solvency of the company, and explore their future business plans. Be aware that these cryptocurrency exchanges can and do go under. Any jackass with a computer and an Internet connection can call themselves a cryptocurrency exchange. It pays to do some research and hedge your risk.

Samantha Standish

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I’m a writer. I focus on the why behind the what.

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