You may have heard the saying “Not your keys, not your coins.” Just in case you’re wondering if it’s true, it is.
You see, in the crypto space, the person who controls a wallet’s private keys controls the assets held in the wallet.
This is why the use of a non-custodial, self-custodied wallet is highly recommended, and the use of custodial wallets is discouraged. Custodial wallets are basically those you use on crypto exchanges.
Therefore if you leave your assets on an exchange, you’re leaving them in a custodial wallet, which gives the exchange complete control over the assets.
On the other hand, a self-managed wallet gives you full control over your assets, and you can use them as you please at any time.
In this guide, we highlight five reasons why you should never leave your assets on a crypto exchange unless you’re actively trading them.
Exchanges Can be Hacked
Have you heard news of millions lost due to exchange hacks? This is a common occurrence in the crypto space, and most times, users get to lose all their crypto investments because they left them on the exchange.
When such an attack happens, your assets may be among those stolen, and there’s hardly anything you or the exchange can do to get it back.
The best case scenario is that the exchange compensated you with a token, but getting back the full amount may be unrealistic, especially when you lose a huge amount.
This is why it is advisable to use only credible crypto exchanges if you must hold assets on the exchange. Otherwise, withdraw to a private wallet where you can manage your assets yourself.
Exchanges Can Crash
The case of FTX comes to mind here. Because of the crash of this crypto empire, many crypto whales – including individuals and organizations – are yet to recover to this day.
Even though the exchange’s CEO is on trial, there isn’t much hope of the investors getting back their money.
The most that the courts can do is send him to jail, and that’s it. Therefore, don’t let your assets stay on an exchange a minute longer than they should to avoid such losses.
If you keep your assets on an exchange, chances are you’ll keep logging into your exchange accounts regularly to manage your portfolio. This exposes you to phishing attacks, because bad actors monitor such accounts.
A phishing attack can happen when you wish to log into your account and then you’re redirected to another website where you provide your login details and then the attacker captures it.
If you’re just a hodler, it is advisable to just move your assets to a cold wallet, especially if you have a significant investment.
The Exchange May Shut Down
Apart from an exchange crashing or getting hacked, the team behind the exchange may also decide to shut down and make away with its users’ funds. This has happened before and it can happen again.
Not every exchange is credible and here to stay. Some of them are scams set up by malicious actors and waiting to gather enough funds before running off.
Before using an exchange, make sure it is credible and then withdraw your assets to a personal wallet as soon as possible.
It’s Better to Control Your Keys
Maybe there’s no chance that the exchange will crash or get hacked. Maybe none of the risks highlighted is likely to happen because you’re very careful and that’s great. But come to think of it, isn’t it cooler to just have control over your crypto investments?
It’s generally better to just take control of your wallet, unless you’re using the assets for active, daily trading.
Otherwise, exchanges are just platforms for buying and selling crypto assets, they are not designed to safely hold those assets and you should have this in mind while you think about why you’re using an exchange.