Will You Keep Your Crypto Assets in a Wallet or on an Exchange? [@gbenga crypto academy course 2]
Keeping cryptocurrency on a wallet or an exchange? Thanks to @gbenga for the interesting topic The Steemit Crypto Academy Week 2: Cryptocurrency Exchanges and Cryptocurrency Market Capitalization where he explained cryptocurrency exchanges, the types of exchange available, their functions, merits and demerits. He also explained what cryptocurrency market capitalization is, how to calculate it and other necessary things needed to be known.
Cryptocurrency Wallets and Cryptocurrency Exchange
These two places are options to store cryptocurrency either on exchanges on in a wallet but before I continue, I will explain a little about the Wallets and Exchanges.
Wallets, unlike the traditional ones where we keep our paper money, cryptocurrency wallets are applications, devices and portals that record transactions for s particular address thereby keeping track of every token that goes through that address thereby serving as a wallet to store the assets in the address. A wallet consists of two or more keys but basically, two keys, the public keys which people can see and use to track tokens, the private key used to sign transactions and the address used to receive coins.
There are several types of wallet ranging from cold/hardware wallet which could be paper wallet or devices such as Trezor, to hot/software wallets which could be applications or online web wallet. With either of the wallets, the holder keeps the right to their wallet and the key thanks to the private key.
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Cryptocurrency Exchanges are marketplaces where people buy and sell cryptocurrency. There are two types of exchanges, the decentralized exchange and the centralized exchange. The decentralized exchange gives traders the right to hold their assets even while trading while a centralized exchange receives assets and allow users to trade IOUs on their platforms while keeping their assets safe.
For the sake of this post, we know that decentralized exchanges do not keep user's assets, so we will looking at centralized exchanges.
Will, You Keep Your Crypto Assets in a Wallet or on an Exchange?
For me, I will be picking Wallet as the option to save my cryptocurrency as I consider it safer compared to cryptocurrency exchanges. Using wallets (hardware or software) is convenient as well as safe. Going with the phrase "not your private key, not your coins" I will state a few facts as to why I prefer to keep my cryptocurrency in the wallet over exchanges.
Lack of Complete Ownership
If you do not own the private key, you do not own the coin. When you trade on exchanges, you are not trading your coin rather, you are trading an IOU provided by the exchange. This is one basic reason you are advised not to send tokens from an exchange wallet when participating in an ICO.
Hacking Risk
When you own the coin and the wallet, you can guarantee your safety but when you don't, you cannot say if the exchange is doing their best to keep the crypto safe. Also, exchanges are prey to hackers as hackers will want to have access to the funds in the fat wallet to funds in a small wallet.
Lossing funds after a hack
A very good example is the hacking of Mt. Gox, which lost $500M in BTC at the time of the announcement. Mt.Gox couldn't survive the hack and people lost their funds while the company went bankrupt.
Conclusion
For me, I will at all times prefer to have my coins in my wallet over having it in an exchange for security, ownership, safety and ease to access purposes.
Mt. Gox thought a lot of lessons for both exchanges and individuals alike and since then people have been very careful with their assets.
Thanks for sharing your view on this, I am glad that you were able to participate.
You are right, after Mt.Gox, a lot of things have changed, and although a lot of hacking still happens, it isn't as much as in the past