Bitcoin was created to give control of your money to you, so were all the other cryptocurrencies.
But by storing cryptocoins on exchanges, aren't we cheating the basic principle of cryptocurrency?
There is a certain appeal in storing coins on bittrex and poloniex. They can store crypto coins and let us use them instantly. But doesn't it make them a bigger target for hacking attempts, with a sure shot of money.
Are we putting convenience over risk?
Anyone who has been in cryptocurrencies from some time will tell you not to store your coins on an exchange.
The basic reason behind this is the risk factor.
Who knows the exchange will not run away with your money, who knows it wouldn't be hacked and all the database will be gone, who knows it would not be bankrupt.
Image Source: Pexels
We didn't trusted our money with the banks, so why should we trust in storing our hard earned money with exchanges, who are not even legally bound with us if they cheat us. We can't do anything against them except regretting.
We all have heard what happened with Mt. Gox.
In 2014, Mt.Gox was handling over 70% of all bitcoin transactions worldwide, as the largest bitcoin intermediary and the world's leading bitcoin exchange. In February 2014, Mt. Gox suspended trading, closed its website and exchange service, and filed for bankruptcy protection from creditors. In April 2014, the company began liquidation proceedings. Mt. Gox announced that approximately 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time. In April 2015, Tokyo security company WizSec concluded that "most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011."
Many exchanges followed this trend by either walking away with people's money or losing coins. One more famous exchange incident you should know is Bitfinex.
So where do we store our money if not on exchanges?
A wallet, especially made for storing crypto coins.
A cryptocurrency wallet is a digital wallet used to store, send and receive digital currency like bitcoin, ethereum etc.
Most coins have official wallet or a few officially recommended third party wallet.
How does a cryptocurrency wallet works?
Coins are not stored in a wallet but on the blockchain. Instead wallets have two keys: a private key and a public key.
A private key shows your ownership of public key (a code that is connected to a certain amount of currency on blockchain) in order to access your funds on blockchain.
The public key allows a user to send an amount of coin to another user. The private keys are like your online banking password. You should keep your private keys secure as with private keys, anyone can access your cryptocurrency.
There are several types of wallets out there like software wallet, web wallets, paper/cold storage wallet.
Some of the most popular type of wallets are:
1. Software wallets: It is software installed on your computer that you can control. Your currency is stored in your computer and only way to use your coins is having a physical access to your computer. So unless anyone steals your computer, it is secure. It is a lot more secure than storing your altcoins on any exchange.
You just have to pick up which software wallet you want to use, download it and store your coins in it.
For example: Bitcoin armory is one of the most popular open source software wallet.
2. Web Wallets: Web wallets adds some convenience to the software wallet as your coins can be accessed from anywhere with access to web.
Phishing and hacking of online wallets is common, so it is not advised to store large sum of money in online wallets.
Still some online wallets have a high reputation. Like Blockchain.info and Bitgo etc.
3. Hardware Wallets: These are the type of wallets generally advised to store a large amount of money. It is like cryptocoins stored in a hard drive, but they are dedicated hardware specially built for holding cryptocurrency and to keep it secure. These devices can go online for transferring coins and uploading data and can be disconnected to go offline for storing it safely.
The private keys are also pin protected.
Keep key, trezor and ledger wallet are some dedicated hardware wallet.
4. Paper wallet: In this wallet you can print out and store the public and private keys on a paper and store it physically. With this option, you can completely avoid storing any digital data about your currency. It is a very strong way to keep your coins away from hackers and malware. But you have to keep secure that piece of paper as it may fade, torn out, or lost. Once you lose it, there is no other way of getting back your coins.
One of the paper wallet providing service is Bitcoin Paper Wallet.
The most important thing to remember while using any wallet is that you have to keep your keys protected. If you lose your private key, you will lose your coins forever.
Image Source: Pixabay
Conclusion: We must keep our cryptocurrency in either hardware wallet or paper wallet, or spread them in some reputed online wallet services.
So storing your crypto coins on a genuine wallet keeps them secure and you have complete hold of them, what else?
You could make money by keeping your coins in a wallet.
Yes, there are a lot of giveaways for marketing purpose of new altcoins. If you are holding some quantity of bitcoins or ether, you will get coins free either during the ICO (Initial Coin Offering) or at any pre-decided giveaways like at their 1st anniversary.
Recent examples of huge giveaways:
Worth millions of dollars of byteball are distributed every now and then for btc holders, see here.
Stellar Lumens are going to distribute 16 billion lumens to bitcoin holders on June 27th 2017, to know how to get free lumens, click here.
If you know any upcoming altcoin giveaway, comment on this post.
Which storage method you use is a matter of your own judgement, but didn't we opt out of storing money in banks to cryptocoins because of their pre-decided rules and risks, and to take control of our money.
Are we doing that by keeping our money on exchanges?