If you’ve been in the crypto scene for some time, you’ve heard many people say that they store and trade digital coins on some crypto exchange platform. But suppose you are new in the crypto world. In that case, cryptocurrency exchanges are comparable to a broker, providing the means to buy and sell all kinds of cryptocurrencies available in the market.
Even though they work with robust security features, they must be connected to the internet at all times, which represents a high risk of different kinds of breaches and cyberattacks, that could leave your crypto assets in not only a vulnerable position but also the entire system at the edge of collapse, or even bankruptcy in the worst case scenario.
Safest cryptocurrency exchanges on the market
Hardware wallets are definitely the best way to keep your cryptocurrency safe, but if you are one of those crypto investors that need to trade and make transactions in short periods, then crypto exchanges are best for that. However, remember to store only the digital assets you need in the exchange platform to carry on with these tasks.
We can compare the safety of cryptocurrency exchanges on the market with a three-legged stool. The stool will not be stable if one leg is missing or weak. The three legs, in this case, are regulatory compliance, secure technology, and good user experience. If any of those legs is missing, your exchange isn’t likely to be safe.
Various factors influence a cryptocurrency exchange’s safety, including security measures, track records, insurance coverage, and regulatory compliance. Despite the risk of keeping your cryptocurrency in an exchange platform, there are still some exchanges that are considered safe, which include the following:
Binance
Binance is among the world’s largest and most popular cryptocurrency exchanges. Two-factor authentication (2FA), SSL encryption, and secure cold storage are some measures it has implemented to protect its users’ assets.
Coinbase
With licensure and regulated in nearly every US state, it is one of the most reputable exchanges in the market. It also has insurance coverage of up to $255 million to prevent cryptocurrency theft or malicious hacks targeting online wallets. In addition, the company uses industry best practices and stores up to 97% of bitcoins offline, encrypted, and geographically separated. They also guarantee insurance coverage for bitcoins stored on online computers.
Gemini
In the history of Gemini, we have never seen a major hack. There are insurance policies that cover losses caused by hacks and breaches of security. As one of the largest crypto exchanges, Gemini complies with more regulators than most of its competitors, including the New York Department of Financial Services.
Kraken
Kraken is a US crypto exchange with a strong reputation for security that regularly tests its systems for vulnerabilities. In addition to utilizing cold storage for users’ assets, it implements several additional security measures, including two-factor authentication and PGP encryption with sensitive contact information at both the system and data levels.
Nevertheless, it is essential to note that even the safest exchanges can still be vulnerable to hacking and other security threats. When using any cryptocurrency exchange, you should use strong passwords, enable two-factor authentication, and have a reliable hardware wallet to store all your remaining digital capital that you don’t need to keep in the exchange. Cause We don’t want to expose any unnecessary crypto that we should, right?
Is it secured to hold crypto on an exchange?
Holding cryptocurrency on an exchange is very convenient for trading but comes with security risks. A hacking incident, security breach, business malpractice, or failure to manage funds properly can lead to the loss of your assets. To illustrate, hackers can steal cryptocurrency from many different accounts if they succeed in breaching the security, or the exchange could become insolvent, which could result in users losing their cryptocurrencies.
Unlike government-regulated currencies, the legal system doesn’t protect cryptocurrencies on a high level. There is little to no guarantee that you will get back your crypto funds if an exchange is hacked or declared bankrupt. Thus, the best course of action will be storing most of your crypto assets in a hardware wallet and using an exchange platform to keep the amount of cryptocurrency needed for transactions.
Should you keep your crypto on an exchange?
Short answer yes, but only the amount you allocate for trades and transactions. Remember that your private keys are exposed to many variables, such as internal policies, security incidents, or legal issues that the exchange might face, which can result in your crypto being frozen or lost.
In simple words, keeping cryptocurrency on an exchange for an extended period of time is generally not recommended as exchanges can be vulnerable to hacks, fraud, and other security breaches. So, if your exchange platform is compromised, you want to risk only a small part of your crypto capital while putting aside most of it in a hardware wallet.
Past cryptocurrency exchange collapses
Investing in cryptocurrency is complex and challenging. You need professionals to help you invest your funds and protect them wisely. Plus, due to the minimum regulations in the cryptocurrency industry and sometimes the lack of first-class security measures, cryptocurrency exchanges have collapsed several times in the past, resulting in the loss of funds for many users.
Here are a few examples of cryptocurrency exchange collapses that have occurred in the past:
Mt. Gox
For many years, Mt. Gox was the world’s largest cryptocurrency exchange, handling more than 70% of all Bitcoin transactions. However, in 2014, the bitcoin exchange experienced a massive security breach and lost 850,000 Bitcoins with a value of hundreds of millions of dollars. Users never recovered their funds after Mt. Gox filed for bankruptcy.
Cryptsy
Cryptsy was a popular cryptocurrency exchange that operated between 2013 and 2016. A security breach resulted in the loss of millions of dollars of cryptocurrency in its last year of operations. After the exchange’s bankruptcy, many users have yet to receive their money back.
QuadrigaCX
Launched in 2013, QuadrigaCX was a Canadian cryptocurrency exchange. Following the death of Gerald Cotten, the exchange’s founder, in 2019, it was discovered that only he had access to the exchange’s cold storage wallets, which held most of the cryptocurrency, taking the cold wallet’s password to the grave. Thus, many investors lost money because accessing their funds was no longer possible.
FTX
FTX, the world’s second-largest and fastest-growing cryptocurrency exchange, collapsed overnight in 2022. In addition to FTT (the native token of FTX), Ethereum, and Bitcoin depreciation, the crash of FTX and FTX.US was caused by a lack of liquidity and mismanagement of funds, followed by numerous withdrawals from rattled investors.
Voyager
Once considered a big fish in the cryptocurrency industry, this digital asset lender agreed to sell its assets to the FTX exchange after struggling with legal and regulatory issues. But since FTX collapsed, Voyager finally made a deal with Binance, who agreed to buy Voyager’s remaining assets at a considerably lower price, enabling its customers to withdraw their funds.
Celsius
Founded as an experimental cryptocurrency bank, nearly $1 trillion was lost from the crypto market following the collapse of Celsius Network. When Celsius filed for bankruptcy, its network froze all withdrawals and transactions, costing its customers $4.7 billion.
The above are just a few examples of cryptocurrency exchanges that collapsed either through a long, painful process or overnight, resulting in colossal losses in crypto assets. In light of these incidents, storing your cryptocurrency in a crypto exchange marketplace comes with big security risks that you must consider before placing your cryptocurrency on such platforms.
Hardware wallet vs exchange – A Final Thought
These collapses suffered by plenty of crypto exchanges show that no platform is hack-proof, and issues can arise unexpectedly. The cryptocurrency industry is still relatively young, subject to drastic market and regulatory changes that mainly affect these companies. Therefore It is hard to predict how safe your crypto will be if you store it in one of them.
So how can you avoid falling along with your exchange platform? If that ever happens, of course. Well, plain and simple, get a hardware wallet, which most experts and myself consider the most secure option for storing cryptocurrency. Here is an interesting article about hardware wallets vs software wallets.
But let’s illustrate this with an example, where hardware wallet vs exchange is like comparing a safe vs a backpack. You keep most of your belongings in the safe and put in the backpack just what you need for your daily errands. So just like a safe, you keep most of our cryptocurrency in a hardware wallet that can be accessed only by you, and keep the remaining of your crypto in a backpack, in this case, the exchange, that will allow best to carry on with your daily expenses and trades.
Here is a complete step-by-step guide on how to withdraw in Binance.
Material Bitcoin and Material Ether are one of the most secure hardware cryptocurrency wallets on the market, the first for bitcoin and the second for Ether. They come with a 100-year warranty and are fire, shock, hacker and flood resistant. It is a great option if you are looking to store your cryptos in a safe place.
To sum up, regardless of your goals and role in the crypto world, a hardware wallet is a must-to-have product to store and protect your personal digitals assets away from third parties and, last but not least, hold part of your cryptocurrency in an exchange platform only if you need to trade or make transactions.
Would you like to share your experience using crypto exchanges? Don’t think twice, and leave a comment below; we would love to discuss it with you!
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