Why do people keep their crypto in exchanges, not their own wallets? Exchanges vs Wallets?
Have very little knowledge about crypto so please bear with me.
So it's notorious that when huge exchanges like FTX fail, many people lose their money and crypto. Why would people run the risk of keeping their crypto on the exchange instead of in their own wallets?
I'd expect initially, people had the discipline to keep their crypto in their wallets, and only transfer it to the exchange whenever they wanted to trade. But over time they'd get lazy and complacent since nothing risky happened to the exchange. Is that true?
And it's also risky to keep crypto in your own wallet right? You run the risk of your computer busting or smtg. All the exchanges like Binance and FTX sold the promise of their exchanges being a safer and secure place to store crypto too.
And is there also the risk of crypto being too volatile, so that keeping it in your own wallet is risky cuz you can't dump it fast enough if it's crashing?
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Cold wallets are the most secure way of holding crypto.
"Cold wallets are a way of holding cryptocurrency tokens offline. By using a cold wallet, cryptocurrency investors aim to prevent hackers from being able to access their holdings via traditional means."
https://www.investopedia.com/terms/c/cold-storage.asp
I think one issue is on-ramps to crypto. As an admitted noob in 2020 (and a noob now, can't understand a damn thing on crypto twitter) I bought my first bitcoin and ethereum on Coinbase. By the feel of it, it's easy to think "ok cool these coins live in the Coinbase app, it's like my TD Ameritrade acct, I can just leave this here." And a lot of people do that when they first buy crypto. I left it like that for an embarrassing amount of time before splitting the holdings off into Ledgers and cold wallets.
The on-ramp provides casual users one place to store the first coins they buy, and there’s a real possibility they wouldn’t think to take the coins off the exchange they bought them from. It’s an extra step that isn’t obvious. The casual user either doesn't know the risks, doesn't know how to use hardware wallets, or assumes the money is safe on exchanges. One barrier to adoption is the user interface of crypto. It’s way too easy to straight up make your coins disappear by typing in incorrect addresses. It’s improving though and Ledgers are very useful.
Remember - not your keys not your coins
Simple - convenience and laziness. Self-custody is a big responsibility.
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