Not your keys, not your coins

Crypto exchanges are very popular these days and probably the easiest way to start your journey with cryptocurrencies. You should remember one important rule.

Not your keys, not your coins.

I will try to explain why you should not keep your tokens on an exchange.

You can lose everything if someone hacks an exchange

We believe that crypto exchanges work very hard to keep their services as secure as possible. They protect not only our money but also their reputation. The problem is that hackers target exchanges to stole money. Your money. Are you sure your crypto is safe when you keep it on exchanges? Do you think the most popular exchanges have enough money/experts/experience/knowledge/solutions to protect your tokens? According to this report, the Crypto.com exchange was hacked this year (2022), and hackers stole $34 million. Kucoin and Uniswap were hacked in 2020, Binance in 2019. What exchange will be next?

It may happen with any exchange. It may occur more than once. Do you trust them? Do you want to risk your money?

They can freeze your tokens

It's not only related to exchanges. Every company where you keep your tokens can freeze your money. They can disable withdrawals, and you can do nothing about it. Examples?

Celcius Network notified their users about extreme market conditions.

Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts.

Celsius is pausing all withdrawals, Swap, and transfers between accounts

CoinFlex halts withdrawals.

During the recent market volatility, a long-time customer of CoinFLEX’s account went into negative equity, meaning the Individual’s account currently holds a negative balance. In response, CoinFLEX made the decision to halt user withdrawals starting from June 23rd, 2022. As an exchange, we never want to put users in such a position and regret having to resort to these measures in order to work toward resolving the issue.

Coinflex halts withdrawals

Voyager Digital suspends trading, deposits, withdrawals, rewards.

These are only recent examples. All those companies said the funds were safe, but the reality turned out to be different. I'm not saying they wanted to be in this situation, but that's an example of why we need to think about where to store our tokens.

Such a situation can certainly still happen. Who will be next? How much money will people lose?

What if you wake up someday, and your money is frozen because of "extreme market conditions"? Are you ready for such a risk? What can you do if this happens?

They can ban your account

Your account can be banned. You can't withdraw your tokens. What now? Do you have enough money and connections to sue an exchange? Can you convince them to unblock the account?

Do you think they have no reason to block your account? They don't have to. My account on the HotBit exchange is an example of this. I wrote the entire article about this, you can read it here.

I sold tokens I had on HotBit, and they blocked my account without any information. It turned out that they were doing tokens migration, and they failed, so I sold tokens that theoretically shouldn't be on my account. That's definitely their fault. I can't verify it because I cannot access my account, but they want the tokens back. The value of the tokens they want is twice more than my entire HotBit balance, so it's not a good deal for me.

What now? Nothing. I lost my money. They have access to all my tokens. Today they are worth $1000. How much will it be worth in the future? How much of it will they steal? I can't do anything. According to Linkedin, it's a company from Shanghai. It's even hard to find who is the CEO of HotBit. Maybe this is how they defend themselves against a bad market situation?

What would you do? What if your account is banned? Are you sure you can get it back?

They can freeze your tokens during migration

If you keep tokens on an exchange, they are responsible for any token migration. Your funds are blocked during this time. It can take more time (days, weeks, months) than doing it yourself. Are you sure you can wait?

Fees

Fees depends on the exchange. It's not always related to the network. Let's take ADA as an example.

To withdraw 100 ADA from my Ledger wallet, I need to pay 0,1669 ADA.

Ledger - ADA network fee

Binance takes 1 ADA.

Binance - ADA network fee

HotBit takes 5 ADA.

HotBit - ADA network fee

You may pay a fee for converting your fiat to crypto. You pay a fee for every transaction and withdrawal. If you want to buy a token on an exchange and send it to an external wallet, it may be better to use DEX instead of CEX.

Use a wallet

Of course, there are situations when you may want to keep crypto on an exchange like trading, very high APY from staking/lending, etc. You can use everything the exchange offers, but you must know what may happen. You have to understand risks fully.

Using a wallet is a better idea if you want to keep your tokens long-term. This way, you have total control of your coins. I recommend Ledger. It's a hardware wallet that stores your private keys in a secure hardware device. You can link a MetMask to Ledger. You can swap/stake/buy/sell your coins from the Ledger app.

It may be less convenient in the beginning than using an exchange, but it's worth it. I regret that I didn't transfer my tokens from HotBit to my Ledger. Don't make the same mistake.

You can also use wallets like MetaMask or Trust wallet. It's still better than an exchange.

Keep your money safe

Due to the recent events in the cryptocurrency market, and what HotBit did, I transferred 95% of my tokens to Ledger. Instead of using exchanges, I plan to use (more) solutions like Uniswap, PancakeSwap, ParaSwap, Balancer, Matcha. etc. I'm going to keep as many of my cryptocurrencies as possible on hardware wallets.

It is better to earn a few percent less than to loose everything.

It's better to pay more fees but have total control of your coins.

You sleep better when you know your money will still be yours in the morning.

This is the way. ;-)

Do your research. Ask people who have lost their cryptocurrencies. Do you want to join them?