Holding crypto on an exchange is like giving money to a guy on the corner who knows a broker to put in the stock market and telling them you don't need the account numbers, you trust them.

If you're going to do crypto, get a wallet setup where you have the keys to it.

There's two counter points to this. The first is that in terms of day to day likelihood of losing the bitcoin, you're probably generally safer with an exchange than holding the crypto yourself. Secondly, if the exchanges actually do collapse, then whilst you won't lose your BTC if you're not on the exchange, your BTC are probably going to be worth a lot less anyway, so you're still exposed to the risk of exchanges collapsing. If you're the average joe who has bitcoin (you probably shouldn't have bitcoin) but using an exchange isn't crazy.

> The first is that in terms of day to day likelihood of losing the bitcoin, you're probably generally safer with an exchange than holding the crypto yourself.

The word you’re looking for is bank

> Secondly, if the exchanges actually do collapse, then whilst you won't lose your BTC if you're not on the exchange, your BTC are probably going to be worth a lot less anyway

This is nonsense. Hundreds of Bitcoin exchanges have collapsed over the last 10 years.

So it's not safe to keep in an exchange and not safe to keep outside of an exchange. Future of finance alright.

Future of finance: Your own mattress (cold wallet) or a bookie incorporated in a tax-haven (exchange)

> if the exchanges actually do collapse, then whilst you won't lose your BTC if you're not on the exchange, your BTC are probably going to be worth a lot less anyway

I hear this repeated often. Very short term, sure. But long term, shouldn't your slice of magical internet money pot be worth more simply because there's now less of it in total?

CEX collapses don’t result in the destruction of the coins they hold. It’s usually due to a hack/theft or greedy/risky investments of customer funds.

Practically speaking, coins proven stolen from a CEX are "blacklisted" on most of the other exchanges where crypto interfaces with fiat. If you happen to come into possession of coins that originated from a "blacklisted" address, you will have to prove that you obtained them legally.

So yes... a majority of stolen coins are for all intents and purposes, "burnt". Will the major exchanges care about coins stolen from a CEX 10 years ago? Probably not, but I guess we will cross that bridge when we get to it.

Of course, it is possible to "tumble" these coins, but it's an arms race between criminals and chain analysis, and while they can evade the analysts in the short-term, the crime is recorded in a distributed ledger for eternity allowing near unlimited opportunity for future review.

I keep being told by maxis that P2P crypto->fiat is alive and kicking. Looking at recent hacks (Axie, Crypto.com, etc) seems like tumbling is quite doable too.

It is surely seems crazy to me as long as these exchanges can withhold your money - which brings me to the question how this practice could possibly by legal. Is it in the contract of these pseudo-banking services that they can withhold their clients' money whenever and as long as they wish? Why would anybody agree to such a contract?

Because people aren't reading the fine print. They just assume it's a better bank until this happens.

While this might change in the future, I would guess bitcoin isn't technically money. It's more like a gift card some people will exchange for real money.

But even a gift card has more protection than crypto lol

Use exchanges for just that, exchanging it, but don’t let a central exchange hold it in their wallet.

This reply completely ignores everything GP said. You didn't address either of the (seemingly very valid) points they made.

Generally safer with an exchange I would disagree with, you’re at the whim of whatever is in the TOS for that exchange, it’s not a bank or securities broker. If you’re relatively good with keeping secrets/passwords then setting up your own wallet should be easy.

It seems like exchanges kind of are counterintuitive for a decentralized financial product (for holding your crypto). One could argue that exchanges that fail when people are selling off a lot of volume might not have a good business model. My naive brain thinks an exchange will make money on transactions so it shouldn’t matter if the exchange from crypto_bucks to USD is different. If volume falls drastically then maybe your operating costs are too high?

Where do you initially buy that crypto, then? And where would you sell it, in case you need other currencies?

Work for Bitcoin (wage)

Sell goods and/or services for Bitcoin

Trade Bitcoin on P2P platforms (Local Bitcoins, Bisq, etc.)

> Work for Bitcoin (wage)

Haha, yeah, right. Seriously: don't do this.

> Holding crypto on an exchange is like giving money to a guy on the corner

I’m sorry, what?

A CEX /should/ be comparable to a brokerage like Charles Schwab or even Robinhood. This comes with legal protections - they can’t gamble with my unused money or invested stocks.

Also, and this is the most disingenuous part - how do you buy crypto with fiat? Literally everyone I know uses a CEX to on/off-ramp, and sadly this is widely seen as an acceptable evil.

Are there really legal protections for crypto exchanges?

Use an exchange to on/off ramp it, then put it into your own wallet for holding.

Sure, that’s technically feasible if you’re willing to pay all the greedy fees.

Here’s how it looks for me using Coinbase:

- On-ramp (fiat to CEX-fiat): 0.15€ flat

- Conversion (CEX-fiat to CEX-crypto): ~4%

- Self-custody (CEX-crypto to wallet-crypto): Depends on coin, average ~10€ flat

And if I want to off-ramp, I need to follow all these steps in the opposite order.

Meanwhile, atleast in the non-US countries I’ve lived in, all fiat transactions are free. I can top-up my bank account, send digital money to others, withdraw fiat, etc etc with ZERO fees.

Apparently that's too hard for the layman. Even though there are wallet apps that literally walk you through it...

You should be asking "what exactly is the point of holding BTC on Binance"

We should be asking "what exactly is the point of holding BTC"

Holding BTC for the long term has historically been a lucrative investment. Just not holding it on one of the many centralized exchanges that always seem to get hacked or go bust.

It's not a "lucrative investment". It's a bigger fool scam. The only way to make money in BTC is for someone else to buy in for more than you did originally. It makes it appear as if BTC's price is always going up, but in reality the number of fools is limited - especially with the buy-in getting higher and higher.

Sure, the price will always go up in the long run. But it will become less and less liquid, and at some point those who are left will have hundreds of thousands or millions of theoretical money that's completely unspendable, because no-one else will buy in for more than they did.

> The only way to make money in BTC is for someone else to buy in for more than you did originally. It makes it appear as if BTC's price is always going up

I'm not a crypto expert but that statement seems incorrect to me, since as far as I know BTC has deflation built into it. The more is mined the harder it is to mine more. So as long as investors are keeping some trust in it and are not selling at large scale, the BTC value should continue to go up in the long run (ignoring smaller fluctuations). That's why people have been flocking to it in the first place.

Just because something has a limited amount doesn’t mean its value automatically goes up.

The person you're replying to was very careful to say "has historically been a lucrative investment". They have not claimed it to be a lucrative investment right now.

Investing with Bernie Madoff was historically a lucrative investment, right up until it wasn’t anymore.

Prices went up exactly because of these centralized exchanges.

[citation needed]

Holding tulips in the long term was historically a good investment, too, until it wasn't.

People like gambling. It's a fact of humanity that's never going away.

People like free money. They get addicted to gambling because of that.

I can list a number of valid, real-world use cases. Bitcoin can be easily held either online or offline, in a number of solutions ranging between paper wallets, through hardware wallets, to dedicated laptops.

Holding bitcoin on exchange is like giving people the keys to your safe because it is easier if they can open the safe for you while you gamble.

not your keys not your coins. nothing to see here

"real crypto has never been tried"

I dislike cryptocurrency, generally, but plenty of people hold their own keys. It's rarer, now, but that's because mass consumers are generally stupid, not because the technology is flawed. If you can do the correct thing, and you choose not to (or just are ignorant enough to not do the correct thing), it's kind of your fault.

I still think we should legislate it, but let's be honest: Most people who lose, here, kind of deserve it, for not doing the bare minimum of research.

This doesn't have much to do with people being stupid. If you want to trade more than once a month, you pretty much have to keep the funds on an exchange. Otherwise transfer fees would kill any profit you made. If you're not trading often, you may still want to take the risk due to free in-exchange transfers.

Sounds like the problem's with trading, rather than using it like currency. I've used it for legal, in-person transactions just fine. There are also decentralized exchanges, but the peanut gallery and the incompetent masses would hardly know about them.

Shockingly, "get rich quick" schemes are a bad idea. Who would have thought? Oh, wait. Everyone.

I still think most cryptocurrencies should be highly legislated, because most adults in society are more or less children who can't be trusted around shiny objects, but we should really stop pretending the problem is with the technology. It's with the users, trying to shoehorn it into a use-case it's unsuited for (get rich quick schemes).

> Sounds like the problem's with trading, rather than using it like currency.

The context here is an exchange limiting withdrawals, so... Yes, exactly?

Decentralised exchanges have massive fees in practice. If you want to buy in and cash out after a year, sure. But show me one that takes <0.1% for the whole transaction including transfer/signing fees and supports BTC.

That doesn't mean people aren't stupid, in contrast to what you implied in another comment. Unwittingly day-trading cryptocurrency is stupid, and the people who desire to do it are not very smart.

That said, I do know a decentralized exchange that fits your criteria. I'm not going to mention it, because I refuse to enable such incredibly harmful behavior.

I don't believe anyone is "unwittingly" day trading anything. You're quite aware of doing it - it takes time.

Once Ethereum goes to PoS, let's hope those transfers become cheap enough to compete with centralised exchanges.

PoS has nothing to do with fees being high or low.

For competeness, there's also another change planned after pos - sharing. And that one is expected to lower the fees.

i believe eth (just like bitcoin before) has chosen 2nd layers as a primary scaling solution. which obviously affects compatibility of code across different 2nd layers. basically we are talking about futures years ahead.

so, either trade on exchanges with Lighntning or pick the one at least in jurisdiction that gives you some kind of protection like if you held money for any other service / broker.

It has been tried, it's on my computer right now and is irrelevant whether some exchange has paused withdrawals or not.

real crypto works just fine for millions. it is not problem of crypto that there are people falling for ponzis (not refering to Binance now). also, even quality of cefi exchanges like binance, coinbase, kraken, bitfinex has been outstanding in recent years so really, not sure what are we even talking about here. you get much more often blocked by credit card company or bank because of suspicious nonsense they dont explain.

sure they aren't the problem of crypto because they're a feature of the surrounding ecosystem not the underlying implementation, but when the ecosystem gains the reputation of a scam filled hellscape and most of the value and "use cases" is tied up in artificial hype - that has to pose some amount of worry in terms of future regulation and adoption does it not?

i really hate this analogy but if you want to avoid scams avoid internet. crypto, for whatever reason is treated as special while most are commited with all sorts of hacks or social engineering. on the other hand i do recognize this is an issue but imo the only thing you can do is education. crypto has valid unique amazing usecases and it enables things that were not possible before.

crypto is just like banking, which is an already regulated industry

it is absolutely not. removes many inefficiencies. saying this as someone working in investment banking for years.

I'm still waiting for the actual bitcoin infrastructure or algorithm to break. It's been 10 years and a trillion dollar network.

Just because exchanges fail, and there are shitloads of scams, doesn't mean the underlying technology isn't super interesting and can actually grow into something amazing in a few decades.

> I'm still waiting for the actual bitcoin infrastructure or algorithm to break.

It already happened: https://en.bitcoin.it/wiki/Value_overflow_incident

A few decades from now, the underlying technology will still be super interesting and will still have the potential to actually grow into something amazing in a few more decades.

I wonder if BTC will use the communism excuses, given the space is a hyper-capitalist space where everything is made of money.

I'll be looking with great attention to the near future.

Crypto is user hostile then? Got it

"Always has been."

Speaking of Bitcoin;

Satoshi was an excellent C++ programmer but s/he wasn't quite good at creating GUI and "Crypto" consumer apps that's why s/he open sourced it and left it to the community to build upon it and expand the Bitcoin ecosystem.

Btw at the time Bitcoin was in the experimental phase and Satoshi left the Bitcoin community pretty early that's why "Crypto" was user hostile and maybe still is.

Satosh was NOT an excellent C++ programmer. As someone who heavily dug into bitcoin code, the whole thing was a mess from the beginning. Poorly architected. Insane amount of global variables. It was just a huge mess and still is.

IMO it was initially written by someone deep in government (but I have no proof, just my opinion from looking at the code).

>Satoshi was NOT an excellent C++ programmer.

I'm not a programmer but that is what Gavin Andresen said[1]; he said something like this "Satoshi was an excellent C++ programmer but he wasn't a cryptographer" and "Satoshi wasn't familiar with Cryptography 101" in a sense that Satoshi was sometimes mixing up basic cryptographic concepts.

And yea I know Bitcoin had plenty of bugs I heard of notorious Value overflow incident[2].

>IMO it was initially written by someone deep in government (but I have no proof, just my opinion from looking at the code).

My assumption is someone from the academia e.g. university professor. Maybe someone who was teaching freshmen basics of Computer Science and basic C++ programming then your point might be valid that Bitcoin's codebase was poorly written looking from the practical and from the professional point of view.

[1] https://www.youtube.com/watch?v=rQ3e1Pzu7iI

[2] https://en.bitcoin.it/wiki/Value_overflow_incident

Nope.

The point is you store your crypto on a non-custodial software wallet (Metamask) or a hardware wallet (Ledger Nano) and not on an exchange, so it cannot be 'held hostage'.

It is not your keys, not your coins if it is on an exchange which uses custodial wallets, but doesn't apply if it is on a non-custodial wallet.

Thanks for highlighting the bad UX of crypto currencies, as it provides a nice segue into the financial danger that UX causes, as it creates customer-demand for simplifications that exchanges provide – so every time an exchange does something rugpull-ish we're actually testing how much of crypto's market-cap is based on maybe not-so-sturdy confidence of retail investors...

This statement bugs me because it is a large source of confusion for new people.

Your funds are spendable by your private key. Your private key is stored on Metamask, Ledger or a piece of paper.

It’s an important distinction to make. Your hardware wallet is just a custodian of your private key.

That bugs me too.

Almost every document out there talks about storing coins in your wallet. It’s actually a private key in there.

Maybe with the right language, more people might be tempted to hold their own keys and eschew centralised exchanges.

You either have a healthy ecosystem or you don't.

This is great if I want to store it, or spend it on places that accept Bitcoin (or other coins) but what if I want to exchange it for another currency? Seems to me only two options, an exchange or a face to face trade?

You can use something like https://bisq.network/

So is command line, but that doesn't mean it has no value.

Correct, there is no point in holding crypto on an exchange. If you hold your own crypto, you don't have this problem.

So crypto is fine for transactions that I can wait a few tens of minutes to a few hours to resolve, but not ones that I want to make at the rate of every fiat currency I hold.

I can see how other people would have that use-case.

There are cryptocurrencies with sub second transactions and zero or almost zero transaction fees. Welcome to the world of Proof of Stake.

You do understand that proof of stake has absolutely nothing to do with transaction speed or fees -- speed depends on how many nodes you want to agree on any transaction (decentralization) while the fees depend on how congested the network gets in an open pricing model for fees?

Unless you are a crypto expert in it for the technology, that you happened to learn from random shiller YouTube videos.

Sorry, I classified DAG under PoS, my mistake.

I don't see how this relates to my comment above at all.

Exchanges allow for sub-second resolution of a transaction because the resolution is actually pushing numbers around in the exchange's own internal tables (or between trusted exchanges). Banks offer similar service when trading fiat currency (either because they can resolve an internal account-to-account transaction or because they'll float the risk of fraud until they can resolve a cross-firm transaction). But if you want to have the Bitcoin network agree on a transaction, it has to get buried several blocks deep in the chain, and that takes time.

Ah, yes I don't disagree. IMO, I don't think the use case for crypto is to replace fiat, but I can see how those that operate from that assumption/desire would experience friction.

You need to hold the keys in your own wallet. Holding it in a centralized exchanges like Binance, Coinbase etc is at best just DB entries.