DeutschMany people think that their coins and tokens are safely stored on the crypto exchange of their choice. But this is a mistake – here are the five most important reasons why you should withdraw your cryptocurrencies from the exchange as quickly as possible.
1. You Need the Exchange’s Permission to Withdraw your Coins
You will experience the problem of “locked” coins on a crypto exchange at the latest when you have to prove your source of income or submit further identification documents. Or your balance is suddenly unavailable due to system maintenance when you need it. A lock also often occurs if the 24-hour limit has been exceeded. The feeling of being the proud owner of a certain amount of Bitcoin, but not being able to do anything with it, is a very unpleasant and frustrating situation. But if you own Bitcoin & Co. yourself, you can do what you want with it and when you want.
2. The Bitcoins are not on the Exchange, but on the Blockchain
Just because you see a certain Bitcoin balance in your exchange wallet doesn’t mean that the coins are really there. In reality, they are just certain numbers on the screen. The Bitcoins are actually on the blockchain, the globally distributed ledger. In principle, the Bitcoins belong to the person who owns the so-called private key. The exchange only has a legal agreement that it manages and displays its users’ balances. If the CEO of the crypto exchange fakes his death, the government suddenly intervenes or the exchange is hacked, all Bitcoins suddenly disappear or belong to the person who owns the private keys.
The exchange owns the private key to the Bitcoins and the user only has a username and password and “the promise” that the Bitcoins belong to him. Often, beginners are confused by a 24-word password and think that this represents the private key. There have been cases where Bitcoin users of an exchange have lost all their Bitcoins after the CEO (the only person with access to private keys) denied his death. Other exchanges, in turn, were hacked and all Bitcoins suddenly disappeared. The least you can do is to inform yourself about everything and be aware of possible scenarios.
3. Exchanges Sell the Coins Multiple Times
This effectively inflates the Bitcoin supply. If there is a mass withdrawal of Bitcoins from the exchange, the exchange may become insolvent if it does not actually have the displayed crypto holdings. This is how users lose their Bitcoins. It is a fraudulent way to accept a deposit for Bitcoins from a user and then lend them out again, with the simultaneous promise that the depositor’s Bitcoins are available to them at any time. If the first investor requests his Bitcoin money, he receives the money of another investor. Theoretically, nobody is harmed – until the exchange runs out of Bitcoins. This can happen if many users want their Bitcoin investments back at once.
4. Prevent Government Intervention
Theoretically, the government of the respective country could prohibit the Bitcoin transfer to private crypto wallets (i.e. ask exchange operators to do so), which would make the Bitcoins inaccessible and lose value. The Bitcoins remaining on the exchanges would be useless, while the real Bitcoin economy outside the exchanges would continue to exist via the open peer-to-peer market. For the future, there are realistic expectations that governments will intervene in Bitcoin exchanges and make it really difficult for users to transfer their Bitcoins to private wallets through bans.
5. Protect Yourself from the Influence of Powerful Companies and People
Powerful people and companies can manipulate the BTC price and prices of other cryptocurrencies. This happens in various ways. Be it by spreading rumors, the rapid buying and selling or, as in the current case, by the founder of the FTX exchange with various allegedly illegal actions, where the users’ deposits are used for purposes other than those specified.
Our Recommendation – Stay Skeptical and Use your Own Wallet
Be vigilant and check providers for services carefully in advance. Test with small amounts and only use amounts that you can “afford” to lose in an emergency. Even if the crypto sector still offers dream returns and the prospect of financial success. This is never free, you pay with losses in security and a higher risk. In this case, cryptocurrencies also differ little from classic financial transactions.
The saying “Not your keys, not your coins” is as old as Bitcoin itself. But there is so much truth behind this saying and it should be followed by every user. Store your Bitcoin and cryptocurrencies (or the private keys) securely and offline in your own hardware wallets.
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Recommendation: An overview of the different types of wallets
