The cryptocurrency market is in turmoil after the collapse of FTX, one of the world’s three largest crypto exchanges. Users are withdrawing their Bitcoins and other tokens from centralized trading venues to anonymous and more secure cryptocurrency wallets. After that, they are looking for anonymous and safe ways to spend their coins, like depositing to a casino online or searching for investment opportunities. But others are still using exchanges for storage. Let’s find out what the risks of storing digital cash on cryptocurrency exchanges are.
If you’re storing cryptocurrency in a cryptocurrency wallet tied to a centralized cryptocurrency exchange account, we hasten to disappoint you. Your Bitcoins don’t actually belong to you. To be more specific: you don’t have a full set of tools to control and secure your funds. But the owners of a centralized crypto exchange do. Like the biggest one in the world, Binance. In a sense, it’s like you outsource your bitcoins and any altcoins, and other people are responsible for keeping them safe.
Many big-name exchanges have no intention to steal your savings. They make good money on commissions, advertising, and sometimes investments. But even the best intentions can face a sad reality – sometimes, as a result of certain incompetent management actions, the trading floor suffers losses. In the worst case, bankruptcy can occur, and you, as a user, aren’t immune to this scenario. Most recently, one of the largest crypto exchanges FTX declared bankruptcy.
Centralized crypto exchanges are at the mercy of attackers who identify security vulnerabilities in these platforms and gain access to other people’s money. If you store your savings in a personal wallet that gives you access to private keys, you are directly responsible for ensuring security. If you are careful not to disclose important information, cryptocurrency becomes a reliable way to store your money.
Scammers and Cryptocurrency Exchanges
In exceptional cases, the owners of the trading floor themselves can indeed initiate the theft of your cash savings. Most often, they have access to all the necessary information, as well as the money to try to pull off such a scam.
The case of Thodex platform is well known, the founder of which Farouk Fatih Ozer is accused of stealing $2 billion in cryptocurrency from customers. The victims were hundreds of thousands of users around the world. In August 2022 it was reported that the law enforcement authorities of Albania detained him. How the story ends for ordinary users, who became victims of circumstances, is still unclear.
Personal Data Leakage
Cryptocurrency is not the only thing that can be stolen from you on a trading floor. Many exchanges require a lot of personal data from users for verification purposes. Of course, no one guarantees that another hacker attack or malicious intent on the part of the platform’s management will not result in a leak. If you store cryptocurrency on your external cryptocurrency wallet, the personal data will remain with you.