Are Crypto Wallets Necessary for Storing Bitcoins?
Bitcoin can be purchased at a variety of places, but how should it be stored? You can keep it in the same place you purchased it — for example, if you purchased it through Cash App, you can keep it there as long as you like. You could also use your own wallets to store your Bitcoin and other cryptocurrencies. We will examine both options in this article, as well as whether a separate cryptocurrency wallet is necessary.
Leaving your bitcoins where they are bought is the first option
It is generally very safe to leave your Bitcoins at the exchange or brokerage where you bought them. To ensure the safety of customer accounts, most top cryptocurrency exchanges use the following three types of security:
- Many exchanges keep the majority of Bitcoins in customer accounts in cold storage, which means they are stored in digital wallets that are not connected to the internet. Thus, these Bitcoins cannot be hacked.
- Some Bitcoins are kept in hot wallets (internet-connected wallets) by exchanges to ensure customers who wish to buy Bitcoin, sell, and transfer their digital currencies have adequate liquidity to do so. Customers are usually protected against theft of Bitcoin by an exchange’s insurance policy.
- Furthermore, most exchanges maintain client funds in accounts at FDIC-insured banks, so the cash balance you have in your account is also protected.
In the event your account is hacked and you have Bitcoins transferred without authorization, none of these security measures can protect you. Thus, it is important to protect your passwords and other authentication methods when you store your bitcoin on an exchange in order to avoid hacking incidents. It doesn’t matter how long it takes to transfer Bitcoin out of your account, it’s gone.
Obtain your own Bitcoin wallet
You’re technically using a digital Bitcoin wallet even if you keep your Bitcoin on an exchange. This wallet is known as a custodial wallet, since a third party keeps track of your funds.
As an alternative, you can get your own Bitcoin wallet, which gives you complete control over your Bitcoin and its security keys (private codes that prove you own it). Various categories are available as well.
Is it necessary to have a crypto wallet?
One size does not fit all. As long as you take the necessary precautions to safeguard passwords and other means of authentication, leaving Bitcoin in the custody of an exchange is perfectly safe for most people. In contrast, a Bitcoin wallet can be an excellent idea for someone who has a significant amount of Bitcoin or simply wants their digital currency to be as secure as possible.