When you buy bitcoins, you are purchasing them from an individual or business that has a bitcoin address. You can find the owner of a bitcoin by simply entering the address in any search engine. Once you have found the owner, see if they support transactions with others and if they charge fees for those transactions.
If your goal is to store your coins long-term, it is best to store them offline in wallets that don’t require an internet connection to use. This will prevent hackers from stealing your coins.
Keeping your bitcoins on an exchange might seem like a good idea, but it has proven to be far from safe. We’ve seen several exchanges get hacked or exit scam over the years. The following paragraphs will explain why you should never keep your coins on an exchange..
1. Exchanges are targets for hackers.
Hackers have become increasingly sophisticated in recent years, from the use of ransomware to attacks on critical infrastructure. While these threats are a growing concern for individual users and organizations, most cyberattacks target exchanges. Unlike retail or other ecommerce companies which deal with sensitive customer data on a regular basis, exchanges hold vast amounts of cryptocurrencies that can be easily stolen by cybercriminals.
2. Exchanges can be shut down by the government.
The shut down of Mt.Gox is a grim reminder that exchanges can be shut down by the government if they are using their services to launder money or purchase illegal goods.
With this in mind, it is important to understand bitcoins legality and how governments will react to them.
The cryptocurrency world is currently facing some serious challenges, with the most notable being the threat of government regulation. While some would say that this is a negative for the industry as a whole, it could be viewed as an opportunity to legitimize crypto even further by working together with local governments. In recent days, we have seen two major exchanges shut down their operations in Japan, in response to new legislation which will require them to adhere to Know Your Customer (KYC) and Anti-Money Laundering.
3. Exchanges can steal your money, or worse, shut down and disappear with it.
Exchanges are a convenient and popular way to purchase cryptocurrency. However, with the increasing popularity of exchanges comes an increase in scammers and hackers who specialize in stealing from exchanges.
Today, exchanges are required to get a Money Transmitter License. This is expensive (around $100k), takes months to obtain and doesn’t guarantee your exchange will be safe.
Using ShapeShift, you can convert from crypto to crypto without depositing or waiting for any third parties. You retain control of your assets the entire time.
4. Exchanges are centralized targets for government seizure.
The bitcoin market has been making waves since its inception in 2009. The cryptocurrency has found numerous applications, but is still met with a fair share of skepticism due to its unregulated nature. Because of this reputation, it’s no surprise that law enforcement is keeping an eye on the market.
5. Exchanges are a single point of failure.
You’re probably thinking that all of this is pretty obvious. If a cryptocurrency exchange goes down, the value of your holdings will go down too. But it’s not quite so simple as that. For example, the recent Bitfinex hack resulted in a lot of people losing their money, but the price of Bitcoin didn’t drop by any measurable amount. This was because people had faith in other exchanges to buy and sell their coins at market rates – which they did!
As exchanges continue to be a popular target for cybercriminals, it’s important that you educate your users about protecting their funds. If you want to keep the digital assets of your users safe, consider the following security measures:
#1. Use Multi-Factor Authentication, and
#2. Encrypt Your Private Keys.
6. Exchanges can be hacked and your money stolen by insiders.
Exchanges can be hacked and your money stolen by insiders.
Politicians are not doing enough to regulate the exchanges. The SEC has made a few moves, but they’re largely toothless without some kind of cooperation from Congress, which is unlikely given the current political climate. Even if they did pass a bill regulating Bitcoin exchanges, it would only be a matter of time before someone found another way to steal money out of people’s accounts.
7. Exchanges can lose your money due to incompetence or insolvency.
When you deposit your coins to an exchange, you are essentially giving them the right to use your coins as they see fit. In some cases it can be similar to depositing cash in a bank account and handing over control of that money to the bank. The problem with this is if the exchange gets hacked or just disappears one day, then you may never get your coins back.
If you are planning to trade on an exchange, be patient, and do your homework before making the first step of investment. This will help you to avoid some of the risk involved in trading on an Exchange.