Where to Store Your Cryptocurrency - Exchanges or Wallets?

Most exchanges offer a wallet service as part of their platform. In other words, they store your cryptocurrency for you. There are, however, some security risks involved in this approach. It's always best to keep your digital currency in a personal wallet that you control. In that case, your funds will be safe even if the exchange is hacked.

Demerits of Using Exchanges to Store Your Cryptocurrency

While exchanges are a convenient way to buy and sell cryptocurrency, they are not the most secure option for storing your digital assets. Exchanges are often targets of hackers, and even when they are not, there is always the risk that the exchange could become insolvent and you would lose your funds.

Another downside of using exchanges is that they typically charge fees for each transaction. Besides, these fees can add up over time and eat into your profits if you are a frequent trader. Additionally, many exchanges tend to restrict the amount of money you can withdraw from your account daily. It can be an issue if you need to access your funds right away.

How Wallets Work to Secure Your Cryptocurrency

When you store your cryptocurrencies in a digital wallet, you are essentially entrusting the security of your coins to that wallet. It is, therefore, necessary to choose a wallet that has robust security features in place to protect your coins.

Most wallets use some form of cryptography to secure your coins. This process involves using mathematical algorithms to encrypt and decrypt information. The most popular algorithm used for this purpose is called Advanced Encryption Standard (AES).

However, AES is a symmetric-key algorithm. It stores the key in the Keystore file and uses the same key to encrypt and decrypt the data. The key must remain secret for AES to be secure.

A password or PIN protects the Keystore. You will need to enter the correct password or PIN to access your coins. If the Keystore is ever lost or corrupted, you will lose your cryptocurrency coins forever.

Another security measure often used in wallets is Multi-Factor Authentication (MFA). The condition of providing more than one piece of evidence adds an extra layer of security to this feature.

Wallets will often use a combination of these security measures to protect your coins. Using multiple layers of security makes it much more difficult for someone to hack into your wallet and steal your coins.

Conclusion

According to what l think, wallets tend to have many advantages and are more secure for your cryptocurrency when compared to exchanges. Besides, a wallet's purpose is to store coins, while an exchange is to buy and sell them. So it's more advisable to keep your coins in wallets and not in exchanges.