Should You Store All Your Crypto On Coinbase, Or Get Separate Wallets?


One month ago, in early May, Coinbase
CURRENCY
he told investors – and, indirectly, their account holders – that if they ever went bankrupt, the cryptocurrencies held in their exchange could become theirs instead of theirs.

In its first-quarter earnings report, Coinbase said that if the company went bankrupt, a bankruptcy court could treat customers’ assets as Coinbase’s assets. Bitcoin
BTC
“Hodlers” who have their BTC on Coinbase “would be at the back of the line for redemption,” Bloomberg reported on May 11th.

That’s news for a lot of people. As of December 2021, some 80 million individual cryptocurrency wallets were in use worldwide. It reached 82.2 million in April, according to Statista.

Coinbase had about $ 256 billion in customer funds at the end of the first quarter. Can you imagine what part of that disappears to pay venture capitalists and global bond lords? Coinbase has a bond of approximately $ 1.2 billion maturing in 2031.

Large investors often have professional money managers who manage their cryptocurrency accounts. These have their own custodians to keep you safe. Not so for retail investors. There is a professional version of Coinbase and some exchanges allow you to sign up for custody accounts for more security. But if Coinbase keeps your funds in custody and throws them in the stomach, as is required by the Securities and Exchange Commission to warn, then investor cryptocurrency could be used to pay creditors in the worst case. Assuming this is a plausible risk, should retail investors obtain individual portfolios to maintain their cryptography? There is no Federal Deposit Insurance Corporation for cryptocurrency accounts.

“Exchanges do everything possible to make the global cryptographic user experience more comfortable. But comfort is a double-edged sword. Storing everything in an exchange means you need to rely on the exchange equipment, its platform mechanisms, the situation. of the market and how they deal with compliance, ”says Michael Gord, a board member of the Everscale Foundation in Canada. “If the only person you really trust when it comes to your personal finances is yourself, you should definitely get your own wallet.” Everscale has its own portfolio, the EVER portfolio.

Coin holders often want the portfolio of an individual currency because they use the currency to interact in a particular blockchain ecosystem. Owning a wallet makes it easier.

Those who do not intend to use tokens for anything other than a speculative investment, then it is important to note that performance-paying cryptocurrencies are best stored in their own individual wallet. Otherwise, Coinbase will eliminate 25% of those profits. The most advanced investors involved in performance-sharing and participation programs will have their own portfolios related to those performance tokens.

During the heyday of the initial coin offering phase, hard wallets became the new way to store Bitcoin and Ether
ETH
eum. They proliferated as a solution. These are basically like flash drives. Ledger brand wallets have become ubiquitous. But, like any other portable unit, they are cluttered in an office drawer or stored in a backpack somewhere. Hard wallets should be in a place as safe and identifiable as a traditional combo safe containing family jewelry.

“It’s a good idea, but there is always the risk of losing or breaking it,” said Mike Ermolaev, a spokesman for ChangeNOW, a cryptocurrency exchange in Georgia.

Hard wallets are not very convenient for regular retailers who have to remember to store in the drive, and are slower to use than a mobile app.

Worse, Ermolaev said there are many re-flash and counterfeit hardware wallets designed to steal cryptocurrency.

Most people think of centralized cryptocurrency exchanges as their e-commerce account. It is impossible to keep individual stocks, cash and corporate bonds in a safe, so investors have long resorted to banks or brokers for services and custody.

Cryptocurrency is different. Investors who hold their shares in cryptocurrencies in an exchange are giving their private keys to the exchange and “therefore their money,” Ermolaev says.

According to a blog post by the blockchain data group Chainalysis in February, nearly $ 2.66 billion has been stolen from exchanges since 2012, with the most common method of attack being the theft of private keys. In theory, it would be much harder (and safer) to steal an individual’s digital assets hidden in a multitude of different wallets.

Individual use of the digital wallet is growing, according to a report by market research firm Mercator entitled “Digital Wallets: Moving Beyond Payments With Expanding Options,” released on June 15th.

Universal wallets, which support multiple, unrelated items that are part of a particular blockchain, and merchant-supported wallets, which are wallets that focus limited on a specific brand, are growing in their user base. .

Mercator said this is mainly due to branded portfolios, from branded technology companies like PayPal
PYPL
and it was more of a consumer story than an investor one.

“The market (for digital wallets) continues to be defined as use cases evolve and consumers develop more sustainable preferences. gateway to digitize other items that are commonly found in physical wallets, “said Jordan Hirschfield, research director at Mercator Advisory Group.

Safety is paramount, but so is comfort. Is it worth having 10 different wallets and login accounts? Following the previous comparison with banks as custodians of cash and securities, no one has 10 different bank accounts.

The ChangeNOW exchange has its own portfolio. “You will be the full owner of your assets as your private keys are in your hands,” Ermolaev said of his NOW wallet. “The phrase ‘not your keys, not your coins’ is commonly used among crypto enthusiasts. Unless you’re a day trader, it’s best to keep your cryptocurrencies in a separate wallet instead of on a stock exchange,” he says. . as an example, the portfolio itself. The integration of the ChangeNOW exchange with your portfolio allows investors to manage their portfolio directly in one application without having to go to a stock exchange.

“The cryptocurrency space is full of opportunities, but one of the cornerstones of using cryptocurrency is having control over your own assets,” Gord says. “This is not possible with custody services. Unfortunately, there have been numerous examples of people losing their money because of custodians, so many people try to avoid it by taking full control.”

Coinbase CEO Brian Armstrong said in a series of Twitter posts on May 10 that customers would be protected in the event of a bankruptcy. “Your funds are safe on Coinbase, as they always have been,” he wrote on Twitter.

** The author of this article owns Bitcoin and maintains us with Bitpay and Coinbase has other digital assets. He has an individual portfolio for Algorand to collect performance

SOMETHING
. **



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