Several crypto exchanges have been the targets of high profile attacks from hackers, with users losing significant sums of crypto. While the exchanges do everything they can to keep customers’ private and public keys secure, they’re a lucrative target for criminals. Furthermore, as the FTX collapse revealed, the exchange itself may not be the paragon of sound fiscal management it purports to be.
If you’d prefer not to hold your keys in your exchange’s integrated wallet, you can either pay for a non-custodial wallet with a third-party provider, or buy a storage device like a flash drive to keep your keys in.
Wallet providers are also a target for hackers but are good for accessibility because if you somehow lost your wallet credentials, the provider may be able to help you get your keys by verifying your identity.
Offline ‘cold wallets’ are more secure against hackers because they’re not connected to the internet. Whenever you plug one into a web-connected computer, however, you’re closing the ‘air gap’ that prevents bad actors from accessing your keys. Also, if you lost your seed phrase that secures your cold wallet, you could be locked out from your keys and, effectively, your assets.
Choosing a storage method comes down to how you want to balance security against accessibility.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class. Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.
Crypto assets are unregulated & highly speculative. No consumer protection. Capital at risk.