Should digital currencies be stored on trading platforms?
Keeping your precious bitcoin on the crypto exchange platform might seem like a good idea if you plan to buy and sell on a daily and fast basis. However, given the number of breaches that occurred and touched trading platforms, the offline wallet is considered to be a much safer wallet than the online trading platform wallets.
The safety of your digital wallet and cryptocurrency depends on how you use it, trading platforms are a less secure place to store cryptocurrencies, while offline wallets are the most secure. But there is a trade-off between ease of entry and exit from positions and currency security.
How to store your digital currencies:
There are two options for crypto investors when it comes to storing their cryptocurrencies:
Centralized platforms (providing a currency guard service to their users) and decentralized platforms (users guarding their cryptocurrency).
Each of these methods has advantages and disadvantages, and the best option differs according to the investors. Decentralized platforms are considered safer but ineffective, as it takes a long time to deposit funds in one of the trading platforms, and the opportunity to trade may be lost due to the same liquidity.
While central platforms are more vulnerable to risk and penetration, they provide better trading efficiency as the funds are stored on the platform.
As a general rule, the currencies to be invested in should be stored in a long-term personally without resorting to the trading platform, but for short-term traders with an open position, keeping digital currencies on the trading platform is the most intelligent option.
For decentralized or personal storage, offline wallets are the safest way, because they are not connected to the internet and thus are not vulnerable to hacking.
Hardware wallets and paper wallets are good ways to store:
Is it acceptable to store cryptocurrencies in the trading platform?
Crypto markets are notorious for their volatility, which has made them attractive to traders looking for short-term volatility.
These traders usually hold short-term positions, and hold their capital in a stable currency like USDT or USDC, USDT is the most popular stable currency in the market.
For a trader of this type, keeping money on the trading platform makes more sense, especially when they are in a speculative position.
For derivative trading, traders need to ensure their solvency by depositing collateral that acts as an exchange guarantee deposit.
Those who use platforms such as BitMEX, Binance Future, FTX Exchange and other derivative-focused platforms need to comply with the requirements of the guarantees for trading.
In addition to the types of deals a user can make, the differences between the exchange platforms must also be taken into account, for example the “Queen Biz” platform holds only 2% of the total crypto holdings in a hot portfolio, and the rest in a cold storage portfolio.
The platform also contains insurance that covers any loss of the hot wallet, which adds another degree of safety.
Binance was hacked and nearly 7000 bitcoins stolen, but they bore the brunt of the loss by compensating investors through the insurance fund on the platform.
On the contrary, Cryptopia was a fairly popular platform, but it is now being filtered out.
Regardless of the exchange platform, currencies should not be left on the platform unless the trader is trading short-term and looking to exit an existing position.
Pros of decentralized platforms:
There are several ways to reduce the risk of losing cryptocurrencies such as trading on decentralized platforms.
Decentralized “DEXes” platforms such as “Uniswap” and “Kyber Network” provide traders with strong liquidity and anonymity supported by Ethereum Blockchain, for immediate traders looking for jobs in ETH or ERC-20 codes, decentralization platforms are one of the best options, as Funds are always under the control of the user.
The “ShapeShift” platform is one of the most important decentralized exchange platforms, but it is not a fully decentralized platform as the platform is operated by a limited liability company, unlike Uniswap, which is just a smart contract written in Solidity programming language on Ethereum.
In conclusion, we can say that storing digital currencies on cryptocurrency trading platforms is according to the nature of the user as we mentioned in the article view.