Cold Wallet vs. Exchange - Don't Hold Your Coins on an Exchange! - ELLIPAL

Cold Wallet vs. Exchange - Don't Hold Your Coins on an Exchange!

Exchange is the platform that almost every investor uses to trade cryptocurrency. Billions of USD worth of crypto are traded every day as buyers and sellers list their prices on the exchange. Crypto that is bought or deposited into the exchange is kept in the exchange's wallet. Crypto needed for trading, investing, and staking can all be accessed directly from this wallet. However, many crypto experts do not recommend holding a large amount of crypto on exchange because it is not secure. The cold wallet vs. exchange article will help you understand why it is much safer to store your assets on a cold wallet rather than on an exchange. 

How Exchange's Wallet Works

When you sign up for an exchange, you are automatically given access to all of its functions: buy, sell, trading, wallet, investing, staking, and more. To start your trading, you must first buy some crypto and deposit it into the exchange's wallet.

Whatever you deposited inside the exchange's wallet, it has now stored inside the exchange's system and can be accessed through your username and password. This creates a few security risks that we will need to cover:

1) You don't have full control of your crypto

As mentioned, crypto deposited into the exchange's wallet is stored within the exchange's system. The only way you can access them is through logging into the exchange platform. If suddenly, the exchange denies your login or the exchange system is down, you will immediately lose access to your asset. In the past, there have been many exchanges that suddenly close down to steal all of their user's assets.  

2) Risk of getting hacked

Exchanges are large online companies that hold the billions worth of USD. They are obvious targets for talented hackers that want to get rich. Each year, a handful of crypto exchanges get hacked, causing many people to lose the money that is stored within the exchange. Most of the time, hacks are followed by the exchange closing down, meaning there is nothing you can do about losing all of your cryptos. 

3) Username and Passwords are easy to steal

People normally access the exchanges on their phone or their computer. These devices are always online, meaning they can also become a target for hackers. If your device has malicious malware, it may steal your username and password, and use it to withdraw all of your cryptos. Many large exchanges already adopted 2FA identification to prevent this.

Binance, Coinbase, Kraken, and more are reputable exchanges that have been operating for many years. They have millions of user trusting their services. The risk of them getting hacked or permanently closing down is low. Nonetheless, you should not fully forget about the risks. Many crypto investors who hold a lot of cryptos use cold wallets to store their assets instead. 

Cold Wallets - So Much More Secure

Cold Wallets are known as the safest way to store your cryptocurrency. They are devices designed specially to carry out the job. They can be bought for around $60 to $300. However, what it is worth equals how much crypto you stored in it because you will not be losing whatever you put in there. 

How the device works are a lot different than how an exchange work. When you create an account on it, you have full control of the cryptocurrency you own. This is because you are given Mnemonics (recovery seeds) to hold on to. 

Mnemonics are a set of words you are given when you create a wallet account. This set of words is unique only to this account you just created, and it can be used to recover your assets inside the account at any time. 

Wallet accounts created on a cold wallet are not bound to any organization or system. It is simply a tool to hold your crypto, everything else still depends on the blockchain. You can use the mnemonics to recover or back up your crypto on any wallets or as wallets as you like. As long as you have mnemonics, you will never lose access to your crypto. This is different from exchanges where your access depends on the exchange.

Apart from the freedom that the device provide, they also provide 100% offline security. They can never be connected to any networks or other devices, even if you try to. They are not installed with any elements to help establish a connection. Without any network or device connection, they cannot be accessed remotely, protecting your device from ever getting hacked. Even if there is malware installed to steal your information inside of the device, your information can never find its way out. 

Cold Wallet vs. Exchange - Why experts choose the cold wallet?

Thanks to the superior security and freedom provided by cold wallets, expert investors prefer to store their crypto on them instead of exchanges. When you have invested a lot of money into crypto, is it not worth it to deal with the risks of an exchange. It is much better to buy and hold crypto on these devices instead so you will never risk losing those assets.

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