Advantages & Disadvantages of Using Custodial Wallets

1 year ago
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What Are the Advantages of Using a Broker or CryptoCurrency Exchange Wallet?

1) Most good exchanges or brokers will require you to set up two factor authentication (2FA), which offers relatively strong protection to your account.

2) If you do not feel comfortable with the responsibility of protecting your cryptocurrencies yourself, then storing them with a licensed reputable broker may be an option for you.

*Note: I cannot recommend storing your coins on a cryptocurrency exchange!

A licensed broker has a fiduciary responsibility to their clients. A cryptocurrency exchange does not have the same legal responsibility.

This is not to say that all cryptocurrency exchanges will cease operations and steal your coins, but please note that this risk is unacceptably high in their case.

What Are the Disadvantages of Using a Broker or CryptoCurrency Exchange Wallet?

1) You do not control the Private Keys to the wallet on a cryptocurrency exchange or with a brokerage account.

Always remember: "Not Your Keys, Not Your Coins!"

2) The movement of coins from your wallet to the brokerage or exchange wallet can be slow, mainly due to the number of confirmations required before a transfer can be counted as accepted.
Also, there is often a minimum hold time for fiat currency deposits, before you can withdraw coins purchased with those funds.

3) On most cryptocurrency exchanges, there is a maximum amount of cryptocurrency that can be withdrawn in a single 24 hour period.

4) Cryptocurrency exchanges are often the target of hacking attempts. Therefore storing your cryptocurrencies on an exchange's wallet exposes your holdings to a higher risk of loss by hackers.

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