When you take your coins to an exchange and make a deposit, you may find yourself thinking, 'Here I am depositing MY coins,' but are they really yours once you've made the deposit?
The fact is that exchanges have not always been clear regarding their rules and procedures, and this can often put users in a tough spot. In many ways, exchanges can take the financial power that bitcoin and related cryptocurrencies promise users away at a moment's notice, and it's important to be familiar with a few things before entrusting your funds to a third-party.
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Ownership of digital assets and storing your coins has long been an issue for debate. The primary topic being discussed is, “Who owns the coins? You or the exchange?” How is true ownership established?
This is also a particularly difficult issue to tackle because a straight answer, for the most part, has never really been available. We often hear that storing your coins is a potentially bad idea, but as of today, there’s never really been an in-depth explanation as to why. Of course, exchanges can and often have been vulnerable to hacks and exploits, and in turn, if an exchange is hacked and your coins are stolen, they’re unlikely to be recovered. This is an entirely different subject that has virtually nothing to do with actual ownership.
It’s always important to understand very clearly the rules of each and every exchange. More reputable ones make things very clear to users from the start, but this certainly doesn’t apply to ALL of them. If an exchange takes ownership of your coins, it’s capable of just about anything. For example, they can sell them at another exchange. They can trade against you in the market. They may even stop you from withdrawing your funds, thereby forcing you into a position of exchanging them at a substantial loss just so you can get some of them back. To add insult to injury, it would be nearly impossible to know who would make the profit on the loss you took.
Another big issue is that exchanges can mishandle your coins, and the chance of ever getting them back would be slim to none unless there was insurance in place (this is exactly why companies such as Gemini, which offers FICO insurance and runs as a fiduciary are rising to fame). Without rules or regulations, it can be quite difficult to tell exactly how an exchange would handle your coins specifically, and here’s a further question to consider… Does depositing and storing large amounts at an exchange actually hurt that coin’s market?
Regarding third-party cryptocurrency exchanges, the Washington Post recently had this to say:
“If you choose to use a third party, you need to worry about that third-party swindling you or becoming bankrupt. The Bitcoin market is largely unregulated, so there are few legal protections if you happen to choose the wrong online wallet service.”
Adding to the subject is nerdr.com. The site explains:
"Bitcoin exchanges have no audit process, no way of keeping them honest, no trail and no verification procedures… It’s all trust, based on a house of cards and this is one of the issues I’ve been harping on about from the beginning.”
This certainly presents the possibility that any exchange you work with or trust is likely to possess TRUE ownership of the coins. Obviously smaller amounts are less of an issue, but if you find your collection expanding into “triple-digit territory” or higher, maybe it’s time to look into storing your coins safely in an offline wallet, but don’t just jump into this scenario without thinking either. There are technical skills to be had prior to securing your individual wallet, and you’re going to want to be in on them before “placing your coins to bed.”