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Is it safe to leave crypto on exchange

Is it safe to leave crypto on exchange?

  • 19 August 2022
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A quick look at the history of Bitcoin and cryptocurrencies reveals why it’s dangerous to leave your crypto money on an exchange. Over $1.65 billion worth of crypto assets have been stolen since 2011 and the numbers are growing every year. According to Hackernoon, that amounts to a staggering loss of $12.6 billion when adjusted for inflation. So Is it safe to leave crypto on exchange?

Aside from hacks, problems can also occur within the exchange. Any exchange can be mismanaged, lose, or even engage in fractional reserve banking. You may have heard of a recent QuadrigaCX controversy where the owner died with all the private keys and allegedly lost access to $190 million in user funds. Or maybe you’ve heard of the infamous Mt. Gox exchange, whose founders were unaware of ongoing hacks that lasted more than two years while the exchange lost 650,000 BTC.

Exchanges are tempting targets for hackers because they hold billions of dollars worth of cryptocurrencies. It is often much more profitable to hack a crypto exchange than a bank vault. It’s like finding a pot of gold at the end of the rainbow, except instead of a leprechaun, they have to outwit an exchange’s security measures. As a result, exchanges are incredibly vulnerable to sophisticated cyberattacks.

Is it safe to leave crypto on exchange? How to recognize a safe exchange

There’s no guarantee that you won’t fall victim to another high-profile hack, but choosing a reputable and highly secure exchange greatly reduces your chances. The best and most reliable platforms are open about the level of security they offer and offer you a wealth of tools to secure your account. Here are the most common security practices to look out for when choosing an exchange.

HTTPS

Secure exchanges have a valid HTTPS certificate. Your browser automatically confirms this with a lock in the address bar. HTTPS is an encrypted version of the HTTP protocol. It prevents the collection and modification of data that you send to a web server. Every reputable cryptocurrency exchange should have it.

For example, you can tell from the address bar that your connection to Crypto news is secured with HTTPS.

Secure password

Is it safe to leave crypto on exchange? Good exchanges don’t allow you to set a weak password. A strong password will require you to use a mix of normal and uppercase letters, symbols, and numbers to ensure no one can brutally force it.

Two-factor authentication (2FA)

Protecting your accounts with 2FA is vital. Most exchanges offer multiple 2FA methods including software, SMS, and hardware devices. If there is no way to secure your account with 2FA, the platform is pretty insecure. Also, hackers can spoof your phone number, so the weakest form of 2FA is SMS authentication. Try to avoid this when safer options are available. The most common is setting up two-factor authentication via Google Authenticator. It’s a simple, but safe and effective approach.

Cold storage

Is it safe to leave crypto on exchange? Check if the exchange uses cold storage to store user funds. It is much more difficult to steal funds locked offline than those held in a hot wallet.

Ability to whitelist IP and payout addresses

See if you can whitelist specific IP addresses to connect to your Exchange account. If enabled, logins from other locations will be automatically blocked. Alternatively, some exchanges offer the option to whitelist your withdrawal addresses. If you can do this, the exchange will only allow your funds to be withdrawn to the previously approved addresses.

Other Precautions

Exchanges use many other security tools like multi-signatures, suspicious behavior alerts, email encryption, phishing protection, and others. Additional security measures certainly won’t hurt you, and as long as they’re implemented well, they make the exchange fairly safe caches for your cryptocurrencies.

Fund insurance

Cryptocurrencies are still largely unregulated, so most platforms are not required to follow FDIC reporting requirements or securities investor protection procedures. However, some exchanges take extra precautions and ensure their funds are against theft. While this is a great marketing argument, most of these insurance policies do not protect individual accounts and only apply to the exchange as a whole.

How to recognize a safe exchange

Is it safe to leave crypto on exchange?

Let’s look at a few more reasons why storing your crypto in exchange isn’t exactly ideal.

1. You have no control over your private keys

Every crypto wallet has two keys – a public key and a private key. A public key is like your wallet address. It is used when someone wants to send coins to you. On the other hand, the private key is like the password for your wallet. You must enter this key every time you want to access your coins. This key ensures that only you have access to the wallet.

However, with exchange-provided wallets, your private key is also known to the exchange. This is useful if you forget your private key. Just contact the exchange and they will provide you with another private key after validating and verifying your details. At the same time, however, it is never advisable to share your private key with anyone. Therefore, an exchange that has control over your private key is not something you would wish for.

Is it safe to leave crypto on exchange? A recent case is a QuadrigaCX controversy, where the private keys of thousands of users were lost after the exchange’s owner passed away. Investors reportedly lost access to nearly $190 million worth of cryptos in the process.

2. Exchange wallets can be frozen or blocked

In some rare cases, exchanges have been known to freeze or block user wallets. This often happens without much warning and can be frustrating for investors. Wallets can be frozen if the fraudulent activity takes place on the platform or if, heaven forbid, the exchange itself goes bankrupt. So if you use a crypto exchange, you should know that your account can be frozen or closed at any time.

Binance, one of the largest crypto exchanges, froze the accounts of several customers between late 2020 and mid-2021. Their development team didn’t even explain the reason for the blocks. Back in 2020, users had also accused crypto exchange Coinbase of freezing wallets during a bitcoin bull run.

3. Fees

Is it safe to leave crypto on exchange? Some exchange-generated wallets also charge fees for your transactions. Although these fees are extremely small, typically between 0.1 and 0.2 percent, they can add up over time, especially if you transact frequently. And no one wants their hard-earned money wasted on fees!

Trade your cryptocurrency with confidence

You will likely use both storage methods at some point in your cryptocurrency career. To ensure you are managing your coins with the utmost security, traders can take a few extra precautions.

First, it is recommended that you back up your digital wallet regularly. Computers occasionally fail, and regular backups may be the only way to recover these coins later. Secure locations for backups can be a USB drive or hard drive that can be viewed with a strong password.

Second, software should always be up to date. Hackers often look for ways to compromise outdated software.


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