A commonly asked question among cryptocurrency investors is: Is it safe to store Bitcoin on an exchange? But the answer is a surprisingly complicated one, and there is no perfect answer for every cryptocurrency investor. This guide will provide you with a wealth of information that will help cryptocurrency investors make an informed decision on if storing Bitcoin on an exchange is the right choice.

Bitcoin and Cryptocurrency Is Typically First Purchased on an Exchange

Before you consider storing a cryptocurrency on an exchange, understand that your cryptocurrency will very likely live on an exchange at some point in time. Cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and Ripple are all commonly purchased from a cryptocurrency exchange in the first place. Unless you acquire your Bitcoin or crypto via mining, or it is gifted to you from a friend, investors will need to sign up to a cryptocurrency exchange in order to exchange fiat currencies for cryptocurrencies.

What’s Next After Buying Crypto From an Exchange?

Once an amount of cryptocurrency has been purchased and is made available in your account for trading and sending, what you do with it from there is up to you. Here are among the most common next steps cryptocurrency investors take once they’ve purchased a cryptocurrency from an exchange:

Trade the cryptocurrency for yet another type of cryptocurrency. More obscure altcoins may only have a trading pair against Bitcoin instead of fiat currencies, which means oftentimes Bitcoin must be purchased first, then traded for a different asset type. Some cryptocurrency investors trade Bitcoin often, hoping to generate profits from cryptocurrency’s notorious price volatility.

Move the crypto assets to a cold storage wallet for safe keeping. This is among the safest methods of storing cryptocurrencies for the long term. Cryptocurrency hardware wallets for cold storage are often USB devices with a secure element that stores a cryptocurrency’s private keys, hidden away from the rest of the world and inaccessible by would-be hackers.

Keep that cryptocurrency on an exchange. Investors may opt to keep their cryptocurrencies on an exchange, either to continue to trade, or at least leaving the option to do so open. Another reason a cryptocurrency investor may leave a crypto asset on an exchange is to set a stop loss in case the price falls dramatically and quickly. Stop losses are types of cryptocurrency exchange orders that sell an asset if the price has depreciated below a certain, specified amount.

As noted, moving the cryptocurrency to a cold storage solution such as a cryptocurrency hardware wallet is among the safest methods, but is it safe to store your Bitcoin and cryptocurrencies on an exchange?

The answer is truly yes and no.

Is Storing Bitcoin and Crypto on an Exchange Safe?

While storing a cryptocurrency on an exchange is not the safest method of storing crypto assets, it very well can be a safe method for most investors. Many cryptocurrency investors store their crypto assets on exchanges and will never once experience a security issue or loss of funds.

However, crypto security firm Ledger says that as much as $2.7 million in cryptocurrencies are stolen from cryptocurrency exchanges each day, and the number is only growing with 2018 breaking all previous records for total cryptocurrencies stolen. At the start of 2018, Coincheck kicked off the year with the largest hack in the history of cryptocurrency, losing over $500 million in NEM tokens in the process.

In total, over $1.5 billion in cryptocurrencies were stolen from exchanges in 2018. The number proves that there are indeed risks associated with storing assets on a cryptocurrency exchange. However, knowing that Coincheck accounted for a whopping one-third of all of the cryptocurrencies stolen, it is easy to understand that despite the large monetary value of crypto stolen, the thefts were confined to a couple handfuls of cryptocurrency exchanges.

Cryptocurrency information and price aggregator CoinMarketCap lists over 200 exchanges on their platform, and there are hundreds more that exist. Considering that most of stolen crypto was from only a small amount of exchanges, it means that the overwhelming majority of cryptocurrency exchanges were able to keep customer funds safe throughout the year.

How to Store Bitcoin and Crypto on an Exchange Safely

If you do consider storing your Bitcoin and crypto on a cryptocurrency exchange, be sure to only use a cryptocurrency exchange that is reputable, and has a proven track record of keeping customer’s funds safe. Taking things a step further, investors should look to – whenever possible - keeping your assets on a licensed cryptocurrency exchange.

Licensed cryptocurrency exchanges are held to higher standards from the rest of their industry counterparts, and often boast much stronger levels of security, better infrastructure, and a more experienced executive team that understands the intricacies of the new technology and asset class.

Licensed cryptocurrency exchanges also work closely with key financial market regulators on compliance guidelines, which leads to a safer overall landscape for cryptocurrency investors.

A very small amount of cryptocurrency exchanges feature asset insurance, or have funds dedicated to refunding users in the case of a security breach.

While storing Bitcoin or crypto on an exchange will always expose investors to some amount of risk, even personal cold storage solutions such as hardware wallets – often cited as the safest method of storing cryptocurrencies – will still carry the risk of losing a device or one’s private keys, which would result in the crypto assets being lost forever on the blockchain.

The cryptocurrency industry is very new and young, and in time, will develop improved security solutions and additional methods for either keeping funds safe, or providing insurance options in case of a catastrophic event such as a hack. In time, the risk of storing cryptocurrencies on an exchange will diminish, but for now, be sure to stick to a reputable, licensed cryptocurrency exchange such as Covesting.

Sign up to Covesting today to begin using the most advanced and safest cryptocurrency exchange in the industry.