Don't keep your coins in exchange
I have a friend who's new to crypto and he has all his coins in exchange. He feels they are safe there. "Why do I even need a wallet for anyway?!"
In this CryptoEducation post I'll try to persuaded you NOT to do as my friend.
There are two main arguments against keeping coins in exchange:
- You don't own the private keys of your wallets
- Most are unregulated and uninsured.
But the first and most important idea for me is that some people think, for reasons that are beyond me, that exchanges can act like wallet. I hear them say shit like this all the time: Oh, I just keep them on Polo!
Or, for new people just buying a shinny new cryptocoin for the first time, they go "Can't I just leave it in kraken?"
SHORT ANSWER: NO!!
Let's look at a definition:
exchange:
A marketplace in which cryptocurrencies are traded. The core function of an exchange is to ensure fair and orderly trading, as well as efficient dissemination of price information.
The first conclusion is that if you don't trade, you have no business leaving anything in there. Most of my noob friends do not trade, or at least, should not trade[ but that's for another rant!].
The second conclusion is does anyone else sees the irony of centralized exchanges for a decentralized economy? I mean...
Anyway, back to our reasons.
If you don't own the keys of an wallet, do you really own the key in there? One could argue that sure you do, the exchnge is obligated to give you the coins when you ask for them. Sure, but obligated by whom?
I mean, in banks, you don't want the keys to the bank yet you feel that the money are YOURS and SAFE. Maybe people tend to think the same about crypto exchanges...But the truth is that the banks are very regulated and insured and there are practices [ good and bad] that have been in place to prevent people or institution from stealing or losing your money.
So, you see why point #2 is incredibly important and changes everything: These exchanges are not regulated and have no government or laws overseeing their activity. In a way, they only work because people use them and trust them. But there's literally nothing and no one- and I repeat, NOTHING! - stopping them from saying "Tough luck, your coins are now mine!".
Will they do that?
Probably not, they make too much from the fees to kill the goose but if they wanted to, they could and that's scary enough for me.
But even if your exchange is trustworthy to extreme( hmm, what's that exactly?! ) they are still at risk to be hacked. Remember all the hack from the past?
It's not SUCH a distant past.
Sure, exchange learned their lessons and the coins are safer than they used to be and everyone is doing well. But if something DOES happen and your coins are lost, then what? Will you trustworthy exchange refund the losses? You better hope so because those coins are surely not insured!
As a side note, this does not mean I think exchanges are evil. I think the future of crypto-exchanges is decentralized, with everyone owning their own keys, like ethdelta but better ui. And the fact that it's a wild west out there it's what makes this market so insane, unexpected and dear to us all, right?
When you go to the Wild West you take risks but why take more than you need to?
Bottom line is that exchanges are fishy and have no compelling reason to have your best interest at heart :) Remember that next time you think it's safe to keep important coins there.
Now, there are exceptions. There should not be, but if you have a lot of shitcoins ( sorry, I meant ALTS! ) you can't download 100 wallets for each of them, especially when you have too little to matter. Well ok, but if they are shitcoins why did you even buy?
Imho, btc, eth and eth-tokens and Steem are too easy to store privately not to do it.
In case you don't know - your Steemit account IS your wallet and very secure at that, especially if you keep it in saving account. For btc and eth you can use Jaxx which is very very pretty and so easy to use. Or you can get a variety of other wallets that are out there and really, easy to use ( looking at you, myethwallet ).
Oh, and please don't download or log in browser wallet from LINKS, even if these re MY links and you can trust me. Always check you are on the right page :)
But let's say you are a cowboy! You don't give a FUAK! You don't care for the warnings! WHO AM I TO TELL YOU WHAT TO DO?!
fair point.
Then at least, please, at least! Put 2 factor authentification on all your exchange accounts. It takes literally a second.
In crypto, 2fa is simply common sense.
[Which remind me that we need 2fa on Steemit! @andrarchy can we make it happen in the future?! ]
Did my friend listen?
Noup. But at least he has 2fa now.
Be smart, sleep better and when/if the news of another hacked exchange hits your wall, you won't have a sudden heart attack.
And that's how this post saved a life.
You're welcome :P
As always, leave any comments in the questions and be safe out there!
Superb post! Like your style too. Following.
i bet you say tht to everyone. Still feels good to hear :) here's an upvote!
Back at you, tipped you back.
A lot of it is a combination of risk tolerance, EV hunting, and maximization.
I loan BTC and BTS on poloniex. BTC average about .15-.16% per day, and poloniex has never defaulted on repaying a loaner (presumably because they take 15% commission).
Compound .16%*.85 over a year and we are looking at a >60% ROI each year. Let's turn this into an EV problem.
In the next year, I will turn my X bitcoins into 1.6X bitcoins if the exchange is not hacked or goes insolvent. What is the breakeven %?
When exchange insolvent, assume I get 0.
Y*1.6X = X => Y = .625, which means if the exchange goes insolvent under 37.5% of the time, I am making a +EV move by keeping coins on and loaning them.
Of course you do have to factor in future EV of the coins and that they could 10x down the line, and a total risk ruin to crypto bankroll, but if I think it's less than 5% poloniex goes down in any year, it would be dumb of me not to gamble on 20-25% of my crypto assets.
That said, anything I'm not loaning and not trading I am not keeping on any exchange. Get a hardware stick like Trezor and keep your coins safe.
oh, daut! i was just thinking of you, bro these past days. Friend of mine won a HORSE tournament and i was thinking, that guy needs to get into crypt, i should give daut as an example...WHERE IS THAT GUY?!
Glad to see you around and that you follow the feed as well!! I hope all is well with you and thank you for commenting!!
Haha, hey man, good to see you still blogging and doing well. And congrats to your friend!
I'll be around more frequently than I have been the last 6 months :)
Thanks for the heads up! I have all my coins sitting on bittrex where I trade, but there is a portion I'm holding for the long term. Should probably move that piece to a wallet then let them sit on the exchange.
if you trade...you play the game at a higher risk.reward ration. you know the odds, nothing to say to you! imho that's what matter..it bothers m that ppl don't understand the risks!
jop, exchanges not safe, thanks for spreading a message
oh damn...
Bitcoin Core, Litecoin Core, etc. I tell people that all the time, takes a little work to learn how to manage and secure your own Coins, but it's a lot better than keeping them on an exchange, thereby entrusting their care to the exchange!
thank you for spreading the knowledge!!
And also remember that Poloniex, the biggest exchange by far, was acting very strangely lately. I don't even feel safe having funds there which I trade not to talk about using it as a wallet. But I guess I am stupid as well... After all, they always say "your coins are safe with us," so who am I not to believe?
What was Poloniex doing that was strange?
Pretty much everything :D. First, it started crashing, leaving people unable to trade for hours (of course, prices crashed during this time). Now there are many unresolved tickets with people's funds missing or not going through. I would say they have some liquidity problems, but it is only my purely speculative thoughts. That said, things like that should not happen to a company which makes $1 million per day. Also, they killed the trollbox and even though, the reason they state is very honorable (to make moderators work on months old support tickets), I still think it is a bad sign. I hope it is only a temporary fails due to increasing volumes, but we will see.
Thanks for the info. Will have to keep an eye on things, for sure.
:))) so true. i think if you trade and need polo for some reason...keep a reasonable amount. but the slogan is hilarious to me :D
still learning how they all work...
...epic beard!! a dream!! wow.
LOL u have a beard just like @everittdmickey yu should hit hm up! commenton hos posts, ask him to epxlain it to you, you look like the same age, an same beard well your beard is better i must say, ur beard will earn you ALOt of foowers i swear this is not even a joke i am serious here
just post like he oes everyday with stuff he likes he now has 1000followers and i told him hed be maing a few bucks per post! hes making thousands now
Everyone thinks its a joke until they're coins are missing.
Westworld, instant upvote for you!
Take it from an old salt, keeping more than you need to actively trade with in ANY exchange is DUMB DA DUMB DUMB DUMB. No exchange is impenetrable to hackers or invulnerable to bankruptcy, and some times the owner just decides he would love to run away with millions of dollars of cryptocurrency rather than work for a living. Don't be a future mark!
that was my point too! thank you for your comment