Why Storing Bitcoins On Exchanges Is A Bad Idea!
April 30, 2020 - 2 min read
Let’s face it. Buying Bitcoins is not easy. And it’s designed to be so. Stricter KYC procedures are curated especially to prevent anonymity from taking over the legitimacy of Bitcoin transactions. Therefore, having gone all these tedious and often time consuming steps that leads to one’s account creation on an exchange, the very next thing that people desperately want is- Purchasing Bitcoins.
And once people actually see the figures changing in their account, they feel like a soldier who has just won a war. They get too relaxed and fail to pay any attention to where their Bitcoins are stored. A change of digits in their exchange’s account gives them a false sense of satisfaction, thinking they own their precious Bitcoins.
Exchanges are NOT SAFE Whether you actually own your Bitcoins or not depends on this single question- Do you know what your Private key is?
If you don’t, you are exposing your Bitcoins to desperate hackers that are constantly evolving new ways of stealing your Bitcoins. While it is indeed very difficult for hackers to get access into individual wallet accounts, it is relatively much easier to infiltrate a Bitcoin exchange that already holds a lot of Bitcoins.
These exchanges act as a gold mine to the hackers that not only gain access to your Bitcoins but also your personal information like credit/debit card details, bank details, social security number, national identification card number etc. Personal informations like these are sold at premium rates on the black markets as they are used for impersonation and identity thefts.
The example of Mt. Gox, which was once the biggest Bitcoin exchange and later plummeted to bankruptcy is afresh in the memories of those who bore witness to it. As much as $460 million just vanished and was apparently stolen by hackers, which made the currency fall to record low.
A more recent example is that of hacking at Coincheck, one Japan’s leading Bitcoin exchanges. The amount stolen is considered to be the highest in the history of a cryptocurrency exchange hack amounting to $530 million. While one can say that the hack was on a lesser popular cryptocurrency- NEM; one must not forget that both were being traded on the same platform.These hackings have now become an international phenomenon, as hackers from other countries have not started targeting Bitcoin exchanges in enemy states.
The Monopoly of Exchanges It is hacks like these, that many exchanges overtly state that they not recommend storing bitcoins on their exchanges. But not all exchanges are like that. Some exchanges enjoy the monopoly that people not transferring their bitcoins to other exchanges bring with it. There are several exchanges where a purchase or sale is not reflected on the blockchain, but rather remains a part of their database. It is only after you actually transfer your Bitcoins to some external wallet, that a valid transaction on the blockchain gets registered.
Why do they do so? It’s simple and straightforward- To maintain high liquidity. This high liquidity enables these exchanges to charge a premium fee for instant purchases and sells that some of them offer on their exchanges. This high liquidity is also advertised as one of the major strengths of the exchange, while in reality, it comes at the cost of a superficial sense of comfort that the users of these exchanges enjoy.
What should you do? Bottomline- Transfer your Bitcoins to an external personal wallet as soon as you buy them at an exchange. Stay in control of your private key and do not share it with anyone. These are the golden rules you need to follow to stay in charge of your precious bitcoins.
Get all the details how you spend your Bitcoins, now you can shop with your Bitcoins, use in travel booking, hotels booking, movies ticket booking, restaurant bill payment, pizza center etc.