Investing and buying and selling digital currency can be complicated for beginners. The terms used in this field may seem similar and users may make major mistakes if thorough research is not done.
One of the most important issues in this market is the choice between using a digital currency exchange wallet and a personal digital currency wallet. Cryptocurrency investors must choose between using a wallet or a cryptocurrency exchange. In the following, we will explain about the tips of using the exchange wallet.
We will check out together:
- What is a digital currency wallet?
- Why do traders keep their currencies in the exchange?
- Is digital currency exchange safe to hold?
- Security problem in digital currency exchange wallet
- Important tips in using the digital currency exchange wallet
- Important recommendations for keeping digital currency in the exchange
What is a digital currency wallet?
A digital currency wallet is software or hardware that is used to store, manage and perform transactions with digital currencies. Cryptocurrency Vault allows you to store your cryptocurrencies in a secure environment and interact with other users or exchanges to buy, sell and transfer cryptocurrencies.
Using a digital currency wallet, you will be able to directly control your digital currencies, make transactions and ensure the security of your currencies. But beginners may get confused in using digital currency wallet or choosing the right type of wallet.
In this case, using a digital currency exchange to store, buy and sell digital currency is a good solution. In addition, keeping cryptocurrencies outside the exchange creates fee-related problems for traders. Therefore, these traders also prefer to keep their assets in the exchange.
Why do traders keep their currencies in the exchange?
Although holding cryptocurrency in a digital currency exchange has risks, traders do it, but because of its advantages. When users trade cryptocurrency outside of exchanges in their wallets, they have to pay more.
All transactions and transfers in the cryptocurrency network have a fee, and this fee is not dependent on the exchanges.
For example, if you buy digital currency from an exchange and then want to transfer it to your wallet, you must pay a fee to the network (transferring currencies between wallets has a network fee) But if you keep the purchased currency in the exchange, you do not need to pay additional fees.
In the meantime, suppose you plan to sell the bitcoins in your wallet after some time. To sell Bitcoin, you must first transfer it to a reputable exchange and then sell the Bitcoin.
This transfer requires the payment of a network fee. But if your bitcoins were held in an exchange from the beginning, your transaction fees would be reduced.
Accordingly, traders prefer to keep their currencies in the exchange because they buy and sell digital currency in many ways. However, this may also cause problems. In the following, we explain the problems and important points about keeping currency in the exchange.
Is digital currency exchange safe to hold?
The main advantage of keeping currency in a digital currency exchange is the convenience and high speed of buying digital currency and the facilities that exchanges offer to use their wallets.
In general, putting currency into a wallet connected to an exchange is a simpler process. Through this method, users can exchange their currencies with other currencies kept in the exchange. This method has less security. But it is faster and costs less. A common way to use these advantages and avoid its disadvantages is to keep a small amount of currencies in an exchange wallet, storing more cryptocurrencies in a digital currency wallet.
To put it simply, if you intend to invest long-term, for example for 3 years, it is recommended to keep your assets in a reliable wallet. But if you plan to do monthly, daily or even instant transactions, you can keep part of your digital currencies on the exchange to avoid paying more fees due to transferring currencies between your personal wallet outside the exchange and your wallet on the exchange.
Security problem in digital currency exchange wallet
Holding digital currency in an exchange, with all the advantages and facilities they offer, comes with some disadvantages.
One of these disadvantages is the possibility of hacking the exchange and the loss of users’ assets. Some new and small exchanges use weak security protocols that make them prime targets for hackers.
Even large exchanges suffer from this problem. For example, in 2021, the user accounts of more than 20 million people on the Coinbase exchange were hacked and the assets of these users were destroyed. Although Coinbase later compensated for the damages. But the risk of hacking and theft still exists in exchanges.
Another disadvantage of keeping cryptocurrencies in an exchange is how they are stored. Many online exchanges use warm wallets to store users’ assets. This method increases the speed of access to assets. But at the same time, it also increases the risk of theft and loss of assets. Because in this method, private and public keys are more at risk.
Important tips in using the digital currency exchange wallet
In order to increase the security of your account in the exchange, it is recommended to observe the following points:
- Failure to connect to the account from public Wi-Fi
- Two-step authentication and giving importance to it
- Using a second wallet for long-term storage
- Use a strong antivirus protocol
Important recommendations for keeping digital currency in the exchange
Work with caution and always pay attention to the credibility and security of exchanges.
Also, make sure exchanges have good security features like two-factor authentication (2FA) and strong encryption. Note that there are security problems in exchanges, not only for new and small exchanges, but also for large exchanges.
So always be careful and pay attention to your security information. Researching digital currency exchanges and wallets can help you choose a reliable digital currency exchange and the most suitable digital currency wallet
So get enough knowledge about these issues before investing.