Types Of Cryptocurrency Wallets
Exchanges can seem like a desirable option to those looking to safely store their cryptocurrency, as they provide a fast and easy way to transfer crypto. This convenience draws in many users. If you’re looking to convert fiat money into cryptocurrency or trade between types of cryptocurrencies, exchanges are built for that very purpose.
There are other advantages to exchanges, as well:
- No lost access due to forgotten passwords or seeds
- Ability to store multiple types of cryptocurrency
- Two-factor authentication
- Easy to set up, with little tech knowledge required
- Many accessible altcoins.
- Low transfer fees
However, even with these numerous benefits, exchanges have proven to be untrustworthy in the past.
There have been multiple scandals across the globe, usually centering on cryptocurrency being stolen or otherwise disappearing, often from within the exchange itself.
If a chain of banks had a history of customers losing their life savings to corrupt bank employees, you’d probably think twice before trusting them with your money.
Moreover, it can be the same situation here.
Just last year, the cryptocurrency exchange Coinsecure, based in India, lost 3.5 million dollars worth of cryptocurrency. The exchange blamed the missing money on their chief security officer, accusing Amitabh Saxena of running off with the money.
Use Multiple Cryptocurrency Exchanges
Whether this is true or not is uncorroborated, but it does not bode well for the exchange system that a CSO could conceivably abscond with so much money. Coinsecure will have to reimburse customers from their own funds, a promise that can still be very discomforting.
After all, if a company is unable to pay people back for stolen money, there are few other resources at customers’ disposal.
As startling as the Coinsecure case was, it’s far from the most substantial amount of cryptocurrency to go missing.
In January of 2018, a Japanese cryptocurrency exchange lost over 500 million dollars in cryptocurrency to a hack. The company was holding the currency in something known as “hot” storage, where the crypto is stored using an online system.
Global Coin Report
This may have contributed to the ease with which the money was stolen, and many other exchanges use “cold” or offline storage. Even exchanges usually place some funds into cold storage for security reasons, but in order to provide the easy transfers, hot storage is necessary.
Moreover, it would be remiss not to mention Mt.
Gox, which, despite being the most successful and well-established Bitcoin exchange, ultimately had to declare bankruptcy following the realization that close to a million Bitcoins had gone missing over a period of time. The next news cycle was not kind to cryptocurrency at large and further scared many people away from the topic.
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The missing Bitcoins were worth approximately half a billion dollars in 2014 when the news broke. Half a decade later, the man at the center of the embezzlement allegations is primed to receive a verdict from a Tokyo court.
Cryptocurrency is often regarded with some suspicion by the world at large. Many law enforcement officials see it as the currency of internet criminals, and we are far from a world where cryptocurrency is largely used and accepted.
This mistrust can lead to situations where governments regard crypto with less care than they may otherwise treat consumer property.
Do you remember when Alexander Vinnik was accused of laundering money through the cryptocurrency exchange BTC-E?
Well, during that whole fiasco, the FBI seized the entire site, effectively preventing people from accessing their money. Because your money is considered “part of the exchange,” you are vulnerable to these kinds of instances, regardless of whether or not you are involved in the criminal activity.
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Exchanges are a great option in theory, but they have not proven to be a reliable means of crypto storage yet. Perhaps in the future, we’ll see an exchange option that is proven to be safe, effective, and easy to use. Until then, however, it is wisest for most people to avoid exchanges and instead opt for different storage methods.