Even five years ago, the opinion of many critics regarding cryptocurrency was low. Now this new kind of virtual money has begun to exceed many expectations. But, of course, not all cryptocurrency exchanges are stable, and many of them attract hackers.
Therefore, where to create exchange wallets and store the cryptocurrency is quite logical. However, different types of crypto wallets have their strong and weak sides. So what are the chances of securing your investments, and what risks should be feared?
What Is Cryptocurrency Exchange?
Cryptocurrency exchanges are platforms where you can buy and sell cryptocurrencies connected to the internet. Exchanges reflect the current market prices of the cryptocurrencies they offer. You can also convert crypto funds to USD or other currencies on exchanges. There is no single cryptocurrency exchange that is best suited for each user. But it can help to evaluate your own interest and find crypto exchanges that meet your goals.
Pros and Cons of Saving Digital Assets in Crypto Exchange
When trading cryptocurrencies between wallets outside of exchange services, there is always a corresponding fee and price reduction whenever you send some coins. So what are the main pros?
- While this method of storing cryptocurrencies in a more secure off-exchange wallet is much safer.
- Exchange transfers are still expensive.
- It is convenient, and sometimes the incentives offered by exchanges to use wallets.
- It’s easier to leave money in the wallet with the exchange.
- One of the most common practices among big and small traders is to keep only small amounts in exchange wallets, using a separate cold storage wallet to store most of their crypto assets.
What about the cons of any storage method?
- Each crypto wallet has two keys – a public key and a private key. The first one is like your wallet address. Use it when someone wants to send you coins. The second one is like passwords to your wallet. You need to enter this key whenever you want to access your coins. It means that you are not the only one who has access.
- Exchange wallets can be frozen. It usually happens without much warning and can be frustrating for investors. If fraudulent activity occurs on the platform, or if the exchange itself goes bankrupt, the wallet can be frozen. Therefore, if you use a crypto exchange, you should be aware that your account can be blocked or closed. For example, Binance, one of the largest cryptocurrency exchanges, has frozen the accounts of several clients, and they didn’t even explain the reason for these blocks.
- Some wallets created on the exchange also charge a fee for your cryptocurrency transactions. While these fees are minimal, typically between 0.1% and 0.2%, they can increase over time, especially if you trade frequently.
So any reliable web server can provide some level of security but not 100%. Let’s find out more about different crypto wallets to find out what is the safest.
What Is the Safest Crypto Wallet?
Choosing an online or offline wallet can be confusing for many. However, it is difficult to say that one of them is ideal. The choice should be based on your personal criteria and goals. For some, a hot wallet is perfect; for others, something else. Therefore, let’s look at the most popular of them.
Many consider a cold wallet the safest, and it is also known as a hardware wallet. A cold wallet is defined as one of the offline wallets that are not connected to the internet. Since it is offline, the risk of a cold wallet being hacked is considered to be less. All hardware wallets stores the user’s address and private key on software, paper, or hard drive. However, this storage method has limited availability for cryptocurrencies, including storing Bitcoins. Typically, a cold wallet only supports the storage of popular currencies.
Other experts prefer to store your cryptocurrency in a paper wallet. Some services and websites allow you to create paper wallets by providing users with public and private keys printed on paper. The paper can then be placed in a safe place in a bank or home.
A paper wallet is a great way to keep cryptocurrencies out of the public eye. However, it increases the risk of traders losing their wallets. In rare cases, users have died without telling anyone about their wallets, allowing tokens to disappear from the public entirely.
Hot wallets can be accessed through connected services such as computers, mobile devices, or tablets. These wallets generate private keys for your online cryptocurrencies and are provided securely through the exchange itself. With hot wallets, users do not have private keys to access their wallets. Most exchanges also offer additional security by obtaining licenses and regulating services required by local authorities.
However, a hot wallet may have a particular security risk. When users store their cryptocurrencies, they also transfer the security of crypto assets to the exchange. Many people warn against this because if the currency or the company falls, your coin will also fall.
What Should Security Measures Be Taken?
Instead of holding cryptocurrencies on the exchange account and investing in the non-custodial wallet, there are different types without storage. For example, web wallets include MetaMask and TrustWallet. They are ideal for small investors and frequent traders.
However, if you have already invested in many cryptocurrencies and want to provide safely storing of them, a non-custodial cold wallet is the best option. It is a physical wallet, usually similar to a USB drive or external hard drive, and they have no connection to the web. It makes them virtually immune to ongoing hacks.
These wallets also have keys that only you can access. They also cannot be frozen or blocked. However, keep in mind that with non-stored wallets, if you forget all the private keys, your coins stored there will be lost forever. If you still want to store cryptocurrency in the exchange wallet, note that:
- HTTPS is an encrypted and more secure version of the HTTP protocol. It ensures that your data is not captured or modified when sent to the webserver.
- Two-factor authentication ensures that hackers cannot access your wallet even if the email or login details you use are broken. An exchange with two-factor authentication will send notifications to your phone every time you try to access your account. If you didn’t notice the login attempt, you could simply deny access from your mobile device.
- Some exchanges also allow you to whitelist the IP addresses you use to log into your wallet. At the same time, it will block any login attempts from unknown IP addresses. But it may be problematic if you use multiple locations during the month.
So, if you don’t want to lose access to one wallet, you can make more or consider all security measures that can help against highly sophisticated cyber attacks.
Cryptocurrency storage is one of the most discussed issues of the last five years. So each of us who has any funds offline or online needs to be sure of our safety. Look through the most frequent questions that may arise in your head.
The wallet is a program that allows the storage of cryptocurrency. And exchange refers to a website, sometimes service, where you can convert fiat into digital currency or sell and buy the last one.
Binance is one of the largest exchanges, and it offers vast possibilities to its users, including NFT and crypto trading.
It is a kind of reward for miners, ensuring the successful completion of a transaction that has entered the blockchain.
Each system has its own rules for creating a strong password. For example, the presence of uppercase and lowercase letters, a special character, numbers, etc. Do not come up with a password that is somehow related to your personal data, and it is easier for hackers to crack it.