Why do people store their cryptocurrency on exchanges?

[headingnorth]

Learning how to use a hardware wallet seems technically daunting to some people. It's not that hard once you know how but even I will admit as a user of Ledger and Trezor wallets it is not so very simple to learn. Not that hard either but it does take some time and effort. There is definitely a learning curve. And some people just don't want to invest the money for a hardware wallet because it does cost a bit of money and certainly and investment of time to learn.


I would suggest a middle ground which is to use a good software wallet with a good history and reputation that gives you self-custody and gives you control of your private keys such as Trust Wallet, Mycelium, Exodus, Atom Wallet, etc. Coinbase also has a good self-custody wallet option. These are very simple to learn how to use.

I have never heard of any of these software wallets being hacked.

[Ayers]

The same point of view, those who still store their coins on exchanges so far are probably traders, and traders make up the majority of this market rather than holders. For a trader, other than centralized exchanges, they have almost no other choice, it is considered a must whether they like it or not.

OP, storing assets on cold wallets or non-custodial wallets can only be considered much more secure than exchanges, but by no means absolutely secure. Therefore, you should not be subjective and negligent in preserving your cold wallet.

Great point about traders. I didn't consider it from that perspective.

I plan to just keep my BTC offline on a cold wallet. I plan to hodl for at least 24 months anyway.

Has there ever been a hack of an offline cold wallet? I tried to look it up and don't think it has happened. Computers and laptops infected with malware is a different story.

After all, traders or not, centralized exchanges are very important to us, if we don't store assets on them, we use them daily. I guess you also buy bitcoin from a centralized exchange and then move to a cold wallet, and later if you want to sell bitcoin, the exchange is also what you need, so there is no need to hate it too much.

I also haven't heard of any cold wallet hacks kept entirely offline. But when using a cold wallet, in addition to protecting from hacker attacks, you should also pay attention to storing your seed phrase from problems in life such as loss, fire...

[gabbie2010]

I think exchange wallets have much better security than a hardware wallet. Accessing an exchange's wallet requires the entrant to go through a number of steps and security to access the wallet that is not seen in other hardware wallets.  To access the hardware wallet, an external software is required, if for some reason your device is infected with a virus or other technical problems occur in the device, but you will not be able to access your hardware wallet very easily.  That is why most investors or crypto currency holders consider it safer to keep their coins in exchange wallets.

So with all the stories of hacking of crypto exchanges with the recent FTX exchange hack you still believe that exchanges has better security than hardware wallet, I think you should reconsider your preference for exchange in keeping or storing your coin against hardware wallet, it has had been stated times without number that crypto hodlers should always ensure that their assets are safe in hardware wallets where you have access to your keys, despite all the efforts by exchanges to protect and secure their firewall they still remain vulnerable to hackers due to the increasing sophistication of hackers.

[Godday]

Crypto assets are indeed something that is always targeted by hackers, because of their fantastic value so that many people want to get bad and they don't care about the losses that others will experience, so wherever we store crypto assets always have risks and this must be prepared to deal with them, currently there are very many who store crypto assets on exchanges because they are easy to monitor every movement that occurs, and we know that all exchanges have a high level of security but in the event of a hack it is indeed our calamity that must be accepted and the exchanges will not be held responsible because they also experience the same thing as the users.

[passwordnow]

You're doing the right thing by buying your hardware wallet and many of the members here got their hardware wallets, either Nano Ledger S or X or Trezor and its variants.
One reason those people store funds on exchanges is about being confident and convenient in keeping them there. That might be the major factor and reason why they're keeping it there for good as they think that exchanges like Binance and other popular ones are untouchable but little did they know, one must learn from FTX.

FTX crash doesn't mean binance will crash too, like coinbase it's been around for 11+ years, and have you seen it crash? While it is not recommended to store large amounts of assets on centralized exchanges, it is impossible to stop using these exchanges. Please assure me that you and OP are not using binance for day trading. If not, please don't badmouth the exchanges.

It's not the point, the point is that every exchange has the possibility that can be FTX in no time. We don't know their whole situation all of this time and then they'll just come out at their lowest time.
Yeah, I may not have seen Coinbase crash but it's not the whole point of it. On this market, no exchange is too big not to fail and all of them has the same possibilities just as FTX and that's the point of what I'm saying and I can choose any exchange that I want but I'll not keep most of my funds there.

[Fullcoinese]

currently there are very many who store crypto assets on exchanges because they are easy to monitor every movement that occurs,

the reason is easy because they are beginners who know crypto from exchanges. they buy their Bitcoins and other assets on exchanges. I believe some of the newbies don't even know Crypto wallets.
not for the reason that it is easy to monitor the price if they are all professionals in trade or investment. I am sure they will not keep their assets on the exchange. wallets they control themselves will be more secure for assets.

[Oasisman]

Why do people store their cryptocurrency on exchanges?

Simple, It's either they don't have any idea about the danger of the exchange (not your keys, not your Btc)  or they are traders. Majority of the most experienced people in crypto who's storing crypto in an exchange are traders 100%. It is necessary for them to always have their assets ready for any price actions so they could trade it immediately once they see an opportunity. Time and timing is critical for traders.
Now, as for the newbies who find it more convenient to just store their Btcs to an exchange, maybe they have not experienced losing their asset due to an internal incidents happened with the exchanges. Like, hacking and system failures.
Well, most of the newbies don't have that much of an asset stored in an exchange anyway. Unlike the traders who are most likely having a massive amount stored in their account.
So, to answer this question, people store their crypto on an exchange simply because they are trading regularly.

[lizarder]

I asked my close group of friends how many store their assets on exchanges and only 1 out of 6 uses an offline wallet.

The recent incident with Luke Dashjr confirms that you are always at risk of being hacked no matter how vigilant you are.

Will give my thoughts on the Ledger Nano once I receive it.

Currently 88% of bitcoins are outside the stock exchange, as explained by Ratimov in his post Re: Long-term Bitcoin accumulation continues People are starting to realize that valuable assets like bitcoin cannot be guaranteed when placed on an exchange, the case that happened to FTX has had a lot of impact on asset storage, so people are starting to pay attention to security behavior.

And one more thing, why is the right reason not to put Bitcoin on the exchange, because indeed the case that has happened to FTX is the fact that keeping bitcoin on the exchange is very unsafe. As explained by theymos in his post Reminder: do not keep your money in online accounts

[drwhobox]

Great decision, I don't keep my bitcoins on exchanges now though I only keep my coins in exchange while I trade them. But last year I don't trade any coins and kept them all out of the exchange.
I used to keep my coins on exchanges like your friends and other people, it is not like I don't know about wallets but I have significant trust on the exchange I trade. I know it sound foolish, but later I learn about all these exchange hacks and stuffs and now I don't keep my faith in exchange or I don't risk my coins.

Looking forward to know more about your experience with ledger nano.

[AicecreaME]

Too lazy enough to look for another place where they could store their coins much safer, or doesn't want to spend money to secure their coins, pretty ironic, isn't it. The other reason is that maybe they don't want to spend transfer fee vice versa if they are going to sell it just in case. People never learn until something happened to their coins. "Prevention is always better than cure".

[Minecache]

I think exchange wallets have much better security than a hardware wallet. Accessing an exchange's wallet requires the entrant to go through a number of steps and security to access the wallet that is not seen in other hardware wallets.  To access the hardware wallet, an external software is required, if for some reason your device is infected with a virus or other technical problems occur in the device, but you will not be able to access your hardware wallet very easily.  That is why most investors or crypto currency holders consider it safer to keep their coins in exchange wallets.

To be fair, both have pros and cons, and there's no such thing as absolute safety. But I disagree with your statement that leaving assets on an exchange is more secure than a hardware wallet. The exchange is a place where a lot of assets are concentrated, so it is always a target for hackers, so storing it on it is much riskier than cold wallets, not to mention other problems such as bankruptcy or frozen assets suddenly.

In short: there are certain risks when using cold wallets that require caution, but leaving funds on centralized exchanges is riskier because once our assets are stored there, we will no longer have full control over our assets.

[Yamifoud]

Too lazy enough to look for another place where they could store their coins much safer, or doesn't want to spend money to secure their coins, pretty ironic, isn't it. The other reason is that maybe they don't want to spend transfer fee vice versa if they are going to sell it just in case. People never learn until something happened to their coins. "Prevention is always better than cure".

And maybe because they never experience yet of being hacked and so they keep using this strategy. But for day traders, this is somewhat optional as they can save a few bucks from moving in and out. But if we are just normal investors who aim for long-term holding, even though we never gotten scammed or hacked yet, securing our funds should be at the top of our minds, and storing our money in exchanges wallets is not advisable anymore. In fact, hearing from others who lose their money from exchanges is already enough that we need to secure our coins before we become a victim too.

[Crypt0Gore]

Given the level of vulnerability of exchanges, it is best to transfer most of your assets to a personal wallet, and leaving them on the exchange can make them vulnerable to the unexpected. However if you are an active arbitrage trader, the currencies you trade can be left on the exchange.
but it is better to leave the amount that you intend to use for short-term trading on the exchange and transfer the rest to the wallet, and not keep 100% on the exchange. Remember the adage "Not your keys, not your coins", this means if you don't control your private keys by transferring your coins to a wallet that you fully control.
and this is actually a serious problem that users, especially beginners, should be aware of, it does look trivial and may be considered safe because they never know and have the best knowledge, experience and information about this. And don't put all of their assets on the stock exchange to avoid unwanted things.

Other than trading, I see no reason why you would keep it on an exchange. Someone said the exchanges pay interest but that still wouldn't be enough for me to store it on an exchange.

Even as a crypto trader leaving your asset on a centralized exchange is not safe because in a matter of minutes, the exchange can do the unthinkable, with the way things are going people will be left with the option of sticking with decentralized platforms for trading, I believe few dex are now building real time trading like that of Huobi and Binance for example Gains Network. It's only a matter of time.

[S A KHAIR]

Given the level of vulnerability of exchanges, it is best to transfer most of your assets to a personal wallet, and leaving them on the exchange can make them vulnerable to the unexpected. However if you are an active arbitrage trader, the currencies you trade can be left on the exchange.
but it is better to leave the amount that you intend to use for short-term trading on the exchange and transfer the rest to the wallet, and not keep 100% on the exchange. Remember the adage "Not your keys, not your coins", this means if you don't control your private keys by transferring your coins to a wallet that you fully control.
and this is actually a serious problem that users, especially beginners, should be aware of, it does look trivial and may be considered safe because they never know and have the best knowledge, experience and information about this. And don't put all of their assets on the stock exchange to avoid unwanted things.

Other than trading, I see no reason why you would keep it on an exchange. Someone said the exchanges pay interest but that still wouldn't be enough for me to store it on an exchange.

Even as a crypto trader leaving your asset on a centralized exchange is not safe because in a matter of minutes, the exchange can do the unthinkable, with the way things are going people will be left with the option of sticking with decentralized platforms for trading, I believe few dex are now building real time trading like that of Huobi and Binance for example Gains Network. It's only a matter of time.

Nothing is entirely safe, man, but the point is they don't have a choice. A lot of DEXs are trying to grow and provide services like CEX, but they are having many difficulties, and I don't think that can be solved in the next few years. And when using a DEX, you also need to connect to a wallet and accept permissions, so there is no guarantee that the DEX is secure.

[serjent05]

It is quite easy to answer why people store their cryptocurrency in exchanges.

1.  They are lazy.
2.  They have limited knowledge of securing their fund.
3.  They are actively trading
4.  They had avail for earning through staking and lending programs.
5.  They wanted to save withdrawal processing and deposit transaction fee.
6.  They have limited knowledge on setting up their own wallet and too afraid to move their coins thinking that they can possibly misclick or input wrong address that may cause their funds to poof.

Pretty much that says the majority of the reason why people store their cryptocurrency in exchanges.

I tend to agree with what you've all said except the number 1.
No one becomes lazy when it comes to valuable stuff, because that's your asset and if you'll know that it'll be lost in the future, then you have to save it.
That category will belong to the lack of knowledge, they store on exchange because they thought that it's safe and there's always support to ask when every time they'll forget or lose their credentials to access the account, unlike non-custodial wallet or exchange it's all your responsibility to keep your private key.

Another factor could be, that Binance promised their users that their fund was in SAFU, but poor users only believed in the marketing strategy so that they will not leave on exchange put into a trust.  People have learned now, that FTX and Binance recently happened was have an impact on the community on how to store your coin in a right place.

There are people who become lazy, maybe because of too much confidence in the centralized exchange.  I am one of those lazy people but not because I am too confident about the exchange, but because I am just lazy.  I am lazy to do all the process of withdrawal, especially if I have to setup up a wallet.  It isn't about lack of knowledge but the pure definition of being lazy itself.  And I had paid a huge price for this, I lost a hundred of thousands of DOGE in exchange, I missed their notification of closure due to me not checking my email regularly.    I happened to read the notice a month after the asset withdrawal process expires.

[Erumo]

It is simple - because people trust cryptocurrency exchanges. That is same as why people store their money in banks. Banks can go bankrupt all of a sudden also, but people keep storing their money there. Btw, for most crypto users, exchanges = banks. People are used to hold their not in cash under the pillow, but in some institutions. Similar crypto users prefer to keep funds "in a big company's account", instead of keeping them on their PC or device.

[Sanitough]

So much trust in CEX. Binance was once hacked and they refunded the affected users.
Majority I suppose are traders that's why coins are on exchanges. It's easy to buy and sell when it's all there in the exchange while that market fluctuates, you wouldn't go to go deposit and withdraw every time the market shifts. I do this but for a few coins only, Binance has a mobile app, easy to access. If you are to keep your coins for a long term, a hardware wallet would be fine.

Also, it gives more convenience on you knowing you don’t have to put to yourself  the whole responsibility of keeping it safe because the exchanges will do it for you. Although exchanges are not completely safe, but they can be trusted somehow with small amount of coins that you plan to trade when the market is already on positive shape.

[Rana590]

So much trust in CEX. Binance was once hacked and they refunded the affected users.
Majority I suppose are traders that's why coins are on exchanges. It's easy to buy and sell when it's all there in the exchange while that market fluctuates, you wouldn't go to go deposit and withdraw every time the market shifts. I do this but for a few coins only, Binance has a mobile app, easy to access. If you are to keep your coins for a long term, a hardware wallet would be fine.

Also, it gives more convenience on you knowing you don’t have to put to yourself  the whole responsibility of keeping it safe because the exchanges will do it for you. Although exchanges are not completely safe, but they can be trusted somehow with small amount of coins that you plan to trade when the market is already on positive shape.

I think there a very few people who store their valuable assets on exchange only for keeping safe. There are a lot of ways and wallet to store assets safely. Most of the people store on exchanges for getting benefits from exchange. They can trade, stake, reinvest an others activities to get profited from their capital.

[AmoreJaz]

So much trust in CEX. Binance was once hacked and they refunded the affected users.
Majority I suppose are traders that's why coins are on exchanges. It's easy to buy and sell when it's all there in the exchange while that market fluctuates, you wouldn't go to go deposit and withdraw every time the market shifts. I do this but for a few coins only, Binance has a mobile app, easy to access. If you are to keep your coins for a long term, a hardware wallet would be fine.

Also, it gives more convenience on you knowing you don’t have to put to yourself  the whole responsibility of keeping it safe because the exchanges will do it for you. Although exchanges are not completely safe, but they can be trusted somehow with small amount of coins that you plan to trade when the market is already on positive shape.

I think there a very few people who store their valuable assets on exchange only for keeping safe. There are a lot of ways and wallet to store assets safely. Most of the people store on exchanges for getting benefits from exchange. They can trade, stake, reinvest an others activities to get profited from their capital.

the dilemma comes when there is unexpected event happening on the exchange, like hacking. and your assets are in staking or earning interest mode. lucky if you are using binance because they have insurance, however for other exchanges, you have no assurance of getting back your assets. some are just plainly trading and for them, it is a hassle if they will send their funds back and forth to their wallet, hence, leaving some on the exchanges. but in any case, if you think you won't be using your coins for long, better send it to your own wallet.

[Viscore]

I am in the process of purchasing a Ledger Nano offline wallet and it got me thinking about why people store their digital assets on crypto exchanges.

These exchanges are susceptible to hacking, insolvency/bankruptcy, misuse of customer funds (FTX) etc.

What would happen if Binance got hacked tomorrow and lost the majority of its cryptocurrency? Would they be able to reimburse customers or would they become insolvent?

I asked my close group of friends how many store their assets on exchanges and only 1 out of 6 uses an offline wallet.

The recent incident with Luke Dashjr confirms that you are always at risk of being hacked no matter how vigilant you are.

Will give my thoughts on the Ledger Nano once I receive it.

There are still some reputable exchanges that have stood the test of time, but that doesn’t mean that they can be forever reliable of our coins. But I guess people have been blinded by the promises of these centralized exchanges that they even trusted them with all of their coins. And others may also have no choice but to put their coins on the exchanges since they have no real knowledge and skills on holding them for long term in their own hardware wallet. And admit it, people have this mentality to just never want to exert more effort on their own, but only want to stay stress free even if it means trusting the exchanges for long term may mean losing their coins in the end.