So you’ve finally decided to jump on the Bitcoin bandwagon! After some research you decide on the exchange with the lowest fees, and you spend the night setting up your account and purchasing your very first sats. You’re feeling very excited to start your journey towards financial freedom, and you can’t wait to build your cryptocurrency portfolio.
You log out of the exchange and head to bed where you dream of Bitcoin and bull runs. As soon as you awake in the morning, you log into the exchange to check your coins, only to find they are all gone! The exchange has been hacked and all of your cryptocurrency has been stolen...
Unfortunately, this is an all too common scenario in the crypto community. When you leave your coins with a third party such as an exchange, you’re giving up ownership of your assets and relying on someone else to keep them safe. Decentralisation is one of the key features of Bitcoin and cryptocurrency, so it’s important to ensure you do indeed own the cryptocurrency you just bought.
THE PRIVATE KEY
One of the most fundamental rules of cryptocurrency is the expression “not your keys, not your coins”, which refers to the need to own the private keys associated with your funds.
So what is a private key?
It’s a string of letters and numbers that unlocks the account to your cryptocurrency. Think of it as the password to your coins. If you don’t actually own the private key to your cryptocurrency, then it’s not yours.
STORING YOUR COINS ON AN EXCHANGE
In short, if you own cryptocurrency, only you should be able to access the funds on the blockchain. But when you store your cryptocurrency on an exchange, you don’t actually own the private key to your coins… the exchange does! This means they ultimately have control over what happens to the assets linked to that private key, and can do with it what they want.
Whilst being able to access, buy, sell & store your crypto online on an exchange may seem easier, if you give up your private key for the sake of convenience, you will lose the critical feature of cryptocurrency — decentralisation — which makes it so impervious to hacking! And this is exactly what has been happening ever since cryptocurrencies amassed billions of dollars’ worth of value. When people give up their private keys, so they can trade more conveniently on crypto exchanges, these centralized platforms become enticing targets for criminal activity.
Overall, it is estimated that at least $11 billion worth of cryptocurrencies has been stolen since 2011!
IF YOU DON’T CONTROL YOUR CRYPTO, WHAT DO YOU ACTUALLY HAVE?
Storing your cryptocurrency on an online platform such as an exchange is effectively equivalent to having an IOU (I owe you), which refers to “an informal document that acknowledges a debt one party owes to another.” As they are informal, IOUs don’t include any legal commitment about paying the debt or payment deadlines. “In essence, IOUs are nothing more than casual notes that people create in order to remind them they need to pay a debt in a future date” – Binance Academy.
HOW TO TAKE BACK OWNERSHIP OF YOUR CRYPTO
By now we are sure you’ve heard enough to make you want to take your assets off any online platform and into your own hands! And the most effective way to do this is with a cold storage hardware device, which is a physical device used for storing your cryptocurrency and private key in an encrypted, offline environment.
When you move your coins onto a hardware wallet, you are:
- ensuring they are secure on your own, independent from a third party
- taking your coins offline, where they won’t be vulnerable to online hacks
- taking full ownership and control of your assets, as you are the only one in charge of your money
If you’re ready to own the cryptocurrency you just bought, you can visit our store here to purchase yourself a hardware wallet.