One of the first questions any burgeoning ICO investor must face is where to store the tokens or coins he will receive. After all, whereas it’s great that cryptocurrencies only exist digitally, this also means that one must constantly be aware of hackers trying to steal funds. Because of this, it’s really important to consider the different types of digital wallets used to store cryptocurrencies – and to remember not to use an exchange wallet to store ICO funds. This article will explain why.
Exchanges do not store your token
It is actually incorrect to say that a crypto wallet “stores” your tokens: since they don’t physically exist, all the wallet really does is store your private key, which is a code only known to you and your wallet, and which in turn proves your ownership of a public key – and thus of the coins to which that key is attached. It is therefore extremely important that the private key remains, in fact, private; anyone who knows the private key can do with your coins whatever he or she wants. If you use a reliable desktop wallet, for example, then this is usually the case, and your tokens will be safe.
When you use an exchange wallet, however, your tokens will not necessarily be safe, because they are, quite simply, not controlled by you. An exchange wallet is not like a bank account, which can be accessed online but which cannot be altered by anyone except you; instead, the smart contract of the ICO you contributed to will return the tokens you earned to the address the investment came from, which is the address hosted by the exchange. Since the exchange runs the private key behind the address, therefore, it, and not you, will now be able to control the tokens. While a reliable and fair exchange may then actually pass on the tokens to the user behind the wallet, it is not legally obligated to do so: you are thus running a huge risk with your tokens.
Exchanges are not you
Another consequence of an exchange wallet, even if the tokens eventually do make it into the wallet, is that – since it’s not run by you, as opposed to regular cryptocurrency wallets – you require the approval of the exchange for any transaction you wish to carry out. In terms of ICOs, this means that when you’re using exchange wallet funds to invest in an ICO, it can take a while for the exchange to approve of your transaction, which means you might lose out on the benefits provided to early investors.
The best thing to do is thus to take whatever tokens you may have in an exchange wallet and transfer them into a private wallet first – then carry out whatever transactions you wish to perform from that private wallet. Not only will this mean your coins are secure from interference by the exchange itself, it will also make your coins far safer from hackers. There are a number of different types of private wallets available, depending on how you would like to store or access your coins – ranging from online wallets, over desktop and mobile wallets, to hardware and even paper wallets.