Top 5 reasons why you shouldn't store cryptocurrency on an exchange

Marketplaces can suddenly go out for maintenance, close a withdrawal, or go bankrupt. These and other problems can be avoided by keeping your digital money in a third-party wallet.

Crypto exchanges are in trouble in 2020. The number of sites that have closed since the beginning of the year has grown by 56% compared to 2019, to 75, and large companies, such as BitMEX, are in litigation with the US authorities. Clients of the OKEx exchange lost access to the withdrawal of funds, and Roskomnadzor entered the Binance website into the list of prohibited ones (which, nevertheless, did not affect its work in the country).

Keeping money on a crypto exchange is the easiest and most convenient way, but at the same time it is extremely insecure. There are several main reasons why you shouldn't keep a large amount of digital money on your trading platform account.

Unexpected maintenance


Even large and well-known marketplaces sometimes go out for sudden maintenance. Solving the problem may require several hours, during which the site's clients often cannot access their accounts. This means that it will not be possible to withdraw your cryptocurrency or conduct a transaction with it during technical work. This can cause losses if there is a strong market movement at the time of the repair.

Hacking


In September, hackers broke into a major cryptocurrency exchange KuCoin. According to The Block analyst Larry Chermak, they stole about $280 million in USDT, Velo, Orion, Ocean Protocol and other tokens. This was the third largest attack in the history of the crypto market.

No marketplace is protected from hacking. Now large companies have special insurance funds for such an event, however, even if the leaders of the exchange in good faith start the process of paying off customer losses, it can drag on for months or even years. Some companies, after hacking, promise to reimburse only part of the losses or completely refuse responsibility.

Fraud


There are crypto exchanges launched by scammers. If you transfer cryptocurrency to such a platform, you will no longer be able to withdraw it. Technical support can answer that there are problems with the platform or give any other argument to prevent the withdrawal of coins. You should work with popular platforms that have existed for more than a year, and it is better to start working with an unknown platform with a small amount in order to first check whether the withdrawal option works.

Closing the output


The withdrawal of funds may turn out to be closed due to an investigation against the leaders of the crypto exchange. This was the main concern of BitMEX's clients, whose co-founders and top managers are accused by the US authorities of maintaining an unregistered trading platform and violating regulatory requirements, including those related to anti-money laundering and customer identification. Despite the investigation, the withdrawal of funds to BitMEX remained open.

At the same time, OKEx has suspended the withdrawal of funds after one of the holders of the private key needed to confirm transactions has ceased to contact. The company claims that he cooperates with law enforcement agencies, this concerns his personal affairs and is not related to the exchange.

Also last week, on October 22, without warning, the ability to deposit and withdraw funds was disabled on the DragonEx site. The company explained its decision as a "crisis of confidence" in centralized platforms, which intensified due to the incident with OKEx.

Users who held funds on DragonEx will not be able to access them until at least November 2. If by that time the company is unable to restructure its debts and restore its working capacity, it will be forced to close.

Bankruptcy


Many cryptocurrency exchanges are closed after major hacker hacks or due to a drop in trader activity. After that, often, users cannot withdraw their cryptocurrency for a long time.

For example, clients of Cryptopia, a New Zealand site that closed in the spring of 2019, have still not been able to get their funds back.

Audit firm Grant Thornton, which liquidates Cryptopia, explained that the exchange had more than 900,000 users and supported up to 900 different coins, so the withdrawal process could not be quick. Only by the end of 2020, the company expects to start accepting applications for the return of user assets, after which the affected customers will need to verify their accounts and data on a special portal.

In order to avoid such problems associated with storing cryptocurrency on a cryptocurrency exchange, it is enough to have a third-party wallet (preferably a "cold" one, that is, a device that does not require a permanent connection to the Internet), and transfer to the trading platform only the amount necessary for the transaction.

Might be interesting
Cosmos (ATOM) Price Prediction for 2020-2025
With a technologically advanced blockchain underlying it, Cosmos cryptocurrency has become quite popular and highly-demanded. It is often used for trading and as a long-term investment. If you consider adding it to your crypto-portfolio, it won’t hurt to check Cosmos price prediction. Let’s find out how much ATOM will cost in 2020 and the following years. But before you read ATOM price prediction, learn more about the crypto asset.
14 Jun 2020
Read more
Bitcoin price fixed above $13,000 in anticipation of a repeat of last year's price explosion
At yesterday's session, the Bitcoin rate for the third time in a week exceeded the $13,000 mark, according to the CoinMarketCap website. Unlike the “punctures” and rollbacks of previous days, traders managed to gain a foothold above this level, which opens up the opportunity to once again rewrite the annual highs set in the outgoing week.
30 Oct 2020
Read more
Initial capital in Bitcoin trading: experts have named the minimum amount
To begin with, one dollar may be enough on the cryptocurrency market, but in the future, experts recommend investing in digital money at least a thousand, and even tens of thousands of dollars.
11 Sep 2020
Read more