A brief look at the history of Bitcoin and cryptocurrencies reveals why it is dangerous to leave your crypto funds in an exchange. Since 2011, over $1.65 billion worth of crypto assets have been stolen, and the numbers are getting bigger every year. According to Hackernoon, that amounts to a jaw-dropping $12.6 billion loss when values are adjusted for inflation.
Aside from hacks, the trouble may arise from within the exchange. Any exchange may mismanage, lose, or even participate in fractional reserve banking. You may have heard of a recent QuadrigaCX controversy, whose owner had passed away with all the private keys, allegedly losing access to $190 millions of user funds. Or maybe you’ve heard about the notorious Mt. Gox exchange, whose founders were oblivious of ongoing hacks that lasted for more than two years while the exchange lost 650,000 BTC.
Exchanges are enticing hacker targets because they have billions of dollars worth of cryptocurrency. Quite frequently it’s much more profitable to hack a crypto exchange than a bank vault. It’s like a pot of gold at the end of the rainbow, except instead of a leprechaun they must outsmart security measures of an exchange. As a result, exchanges are incredibly prone to experiencing highly sophisticated cyber attacks.