Why You Shouldn’t Store Crypto on Exchanges (2025 Guide)

Hey, it’s Lanzo 👋
Let’s talk about something that every crypto user needs to understand — especially beginners:
why keeping your coins on an exchange is one of the riskiest things you can do.

If you’re using Bybit, Binance, Coinbase, or any other exchange, you might think your crypto is “safe.”
But here’s the truth 👇
You don’t actually own your crypto — you only have access to it as long as the exchange allows it.

In this guide, you’ll learn:

• Why exchanges aren’t true wallets
• The biggest exchange risks (hacks, freezes, and collapses)
• The meaning of “Not your keys, not your coins”
• How to store your crypto safely in 2025
• Best tools for self-custody (hardware wallets, backups, recovery)
• Practical tips for beginners

Why Exchanges Aren’t Real Wallets 🏦

When you buy Bitcoin or Ethereum on an exchange, it doesn’t go straight to your wallet.
It stays in the exchange’s custodial wallet, which means they control the private keys — not you.

You get a balance on your account (like a number on your screen), but the exchange holds the real coins.
That’s why the saying “not your keys, not your coins” is more relevant than ever.

✅ Lanzo Tip:
If you didn’t personally back up a seed phrase or private key, your crypto isn’t truly yours.
You’re just renting access from the platform.

Want to learn what seed phrases and private keys really are?
Check out What Are Private Keys & Seed Phrases.

The 3 Biggest Risks of Keeping Crypto on Exchanges ⚠️

Let’s break it down into three major dangers most beginners underestimate.

1. Exchange Hacks 🧠💥

Since 2011, over $10 billion in crypto has been stolen from exchanges through hacks.
Why? Because exchanges are massive centralized targets.

• Hackers attack the exchange’s wallet systems.
• If they succeed, your crypto is gone forever.
• There’s usually no insurance or refunds.

Even the biggest names — Mt. Gox, Bitfinex, and more recently FTX — fell victim.
And once the funds disappear, customers are left waiting for years, often with no payout.

2. Account Freezes & Government Seizures 🚫

Because exchanges are centralized companies, they must comply with regulations and sometimes freeze accounts without warning.
It can happen due to:

• Technical errors
• Regulatory changes
• Sanctions or investigations

When this happens, you can’t move your funds, even if the market is crashing or pumping.

✅ Lanzo Tip:
Never hold all your trading and long-term holdings in the same place.
Keep trading funds on exchanges, but store your savings in self-custody.

3. Exchange Collapses (The FTX Lesson) 💣

When FTX collapsed in 2022, billions in user funds vanished overnight.
Customers discovered that their “balances” weren’t backed by real assets.
The company had secretly moved deposits into high-risk trades — and lost them.

The result?
Hundreds of thousands of people learned a hard truth:
If an exchange goes bankrupt, your funds become part of the debt, not your property.

Exchanges are not banks.
They don’t hold your coins in a personal vault.
They use them — and sometimes lose them.

Why “Not Your Keys, Not Your Coins” Still Matters in 2025 🔑

Even as the crypto industry matures, this one rule never changes.

Owning your private keys means only you can move your crypto.
No company, government, or hacker can take it away — unless you give up your seed phrase.

That’s the beauty of self-custody.
It puts you back in control of your money — just like cash in your pocket, but digital.

Bybit stands out for its clean security record — no major hacks or withdrawal suspensions — but long-term storage is still safer in your own wallet.

Learn more about ledger nano x .

How to Store Crypto Safely 🔒

Here’s the strategy most experienced holders use:

1. Hot Wallet (for daily use)

A hot wallet is connected to the internet — like a mobile or browser wallet.
Examples: MetaMask, Trust Wallet, Xaman for XRP.
They’re perfect for small amounts and quick transfers.

2. Cold Wallet (for long-term storage)

A cold wallet keeps your crypto offline, making it almost impossible to hack.
These include hardware wallets like Ledger Nano X.

3. Paper or Seed Backup

Every secure wallet gives you a 12–24 word seed phrase.
Write it down, store it offline, and never share it.

If you lose your device but have your seed — you can restore your entire wallet anywhere.

Learn more in Hot Wallets vs Cold Wallets: Which to Use.

Bonus: The Right Way to Use Exchanges 🧭

You don’t need to avoid exchanges completely — just use them correctly.

Here’s how pros do it:

1. Buy crypto → Withdraw immediately to your wallet.
2. Trade only what you can afford to lose.
3. Keep 90%+ of funds in cold storage.
4. Enable 2FA and anti-phishing codes on your accounts.
5. Avoid clicking unknown exchange emails or DMs.

✅ Lanzo Tip:
Think of exchanges like an airport — you go there to travel (trade),
but you don’t live there.

The Psychology Behind “Leaving It on Exchange” 🧠

Many beginners feel safer keeping their crypto in one place.
It’s convenient — you can see your balance, trade quickly, and withdraw anytime (in theory).

But this convenience comes with hidden costs:

• You give up control.
• You rely on third-party honesty.
• You expose your assets to centralized failure.

Crypto was designed to eliminate middlemen, not depend on them.

The moment you move your coins to your own wallet,
you’re taking back the freedom that crypto was created for.

Common Myths About Exchange Storage 🧩

❌ “It’s fine, I trust Binance.”

Even top exchanges have been hacked or investigated.
Trust is not a strategy — security is.

❌ “They have insurance.”

Only a few exchanges insure a small portion of user funds — often not yours.

❌ “I’ll move it later.”

Later usually becomes never.
The best time to secure your funds is now.

TL;DR Summary 📌

• Exchanges are not real wallets — they hold your keys.
• History proves even the biggest can fail (FTX, Mt. Gox, etc.).
• Use exchanges only for buying/trading, not long-term storage.
• Store savings in hardware wallets like Ledger or Trezor.
• Back up your seed phrase offline.
• Stay alert — not your keys, not your coins.

Start Your Journey 🚀

Keep Your Assets Safe 🔐

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