It is a well known fact that half the cryptocurrency exchanges are prone to security issues. Many experts in the past have spoken up about it.
Latest on that list is Jesse Powell, the CEO of a major crypto exchange Kraken. It comes on the tails of the Cryptopia security hack that rattled everyone.
Digital assets shouldn’t be stored on trading platforms, said Powell, in a recent interview. He warned users against the security threats that such an action could expose their crypto assets to. He said:
“Please do not store more coins on an exchange (including @krakenfx) than you need to actively trade. Use Ledger or Trezor. DEXes are not a panacea — look at the DAO. Open source just means exploits will be discovered sooner (probably not by good guys),”
The basic logic against Powell’s requests are that if any platform is connected to the internet, then by virtue of it, it is vulnerable to a security breach. If it is hackable, then no matter how safe the exchange claims itself to be, your assets are not safe.
Since these exchanges are centrally operated, once the hacker is in, he/she will have access to all the data and private information that will leave your assets vulnerable. Which is why the industry is repeating this question again and again, is it a good idea to store your cryptocurrency with an exchange?
Going by the facts, no, it doesn’t seem like a good idea. However, there are other alternatives that one could and should definitely look into regarding storage of crypto.
A hardware wallet or a non-custodial wallet is an excellent alternative that enables users to store and manage their own private keys. Since it is not connected to the internet, it is not vulnerable to any sort of security hack.
However, it requires you to be vigilant and careful with your private key. If you are not that type, maybe storing your crypto in a hardware wallet is too much responsibility for you.
Some exchanges offer insurance in case of a hack. When investors are insured, they feel much more safer, storing their cryptocurrency in exchanges. For examole, the exchange Gemini, has such insurers in place. It has been insured by Aon, which is one of the largest insurance service providers in Europe.
So yes, to conclude, storing crypto in exchanges might not be a great idea at the moment. If you still choose to do so, make sure you are insured.