Should I Store Crypto In An Exchange?
No.
Well, not any amount of cryptocurrency that you would care to lose.
A “hosted wallet” is a virtual wallet that is managed by an exchange, instead of managed by you — only they have the private key to your funds. It is always better to have your own cold storage than to trust any exchange with your crypto, other than smaller amounts.
We have learned from the mistakes of the past. In 2014, the world’s largest Bitcoin exchange, Mt Gox, halted all withdrawals from the platform. By the time the company fully collapsed, it was estimated that around 6% of the Bitcoin in circulation has been stolen or lost. Serious investors are now far more wary of storing their crypto on privately owned exchanges.
Of course, the market has rebounded by offering exchanges with hosted wallets that are designed to be far more secure and safe than the Mt Gox’s of the past. The problem with said hosted wallets is that they aren’t actually cryptocurrency transactions recorded on the crypto’s blockchain. Instead, if you purchase on an exchange and leave the funds in your hosted wallet, the transaction remains within the exchange itself. Should the exchange happen to go into administration, you risk the chance of losing your funds in that wallet.
By transferring large amounts of crypto out of your hosted wallet, or using an exchange that deposits directly into another wallet that you have the keys to, you can avoid any incidents like this.
So, remember. A hosted wallet on an exchange is fine for transactions, just make sure that the exchange is currently allowing withdrawals, and then transfer the funds to a wallet you actually own for safer storage. Better yet, use an exchange where you can send direct to your personal wallet, such as using the ShapeShift exchange directly via your KeepKey hardware wallet.
Some exchanges do have hiccups or longer wait times for withdrawals from time to time. If the network is overloaded, as it was in 2017, it can take 20 or more minutes to add a transaction to the public ledger, which then needs to wait for a block to be mined — so there is a backlog and more time added to the transaction. Much like the blockchain itself will have a backlog, an exchange will have their own backlog, too — inundated with requests, which can also blow out wait times.
Check before doing any transactions — so you don’t have to stress about whether you’ll get your funds, or whether the price of a particular crypto will drop/climb significantly before your transaction goes through.
This article is part of our Getting Started with Crypto Series; follow Academy’s medium page for more articles like this.
