“Not your keys, not your coins” basically means that if you do not keep your coins in your own wallet where you know the seed phrase (private key), you don’t truly own your coins.
The general idea is that you should always withdraw your crypto coins into your own wallet that you control instead of leaving them with the exchange.
When you withdraw coins to your wallet, you own the private keys to them. You do not have to trust an exchange for anything once you have coins in your wallet.
Exchanges get hacked, rugpull/scam users, lock people out for any random reason, and sometimes just close down without notice. By withdrawing your coins, you take all these exchange related risks down to zero.
Why you should ALWAYS withdraw your coins
1) Withdrawing tells you that the coins actually exist
Let’s say you buy Bitcoin from some exchange. How do you know the exchange actually has the Bitcoin?
The exchange could just say that you own some number of bitcoin but might not actually have the coins itself. The exchange could just be running paper trades for all its users and pocketing commissions.
In fact, some brokers and exchanges were caught doing just that. When the whale investor “sold” his coins and wanted his profits out, he would learn that the broker didn’t actually have his money. (Yes, some people are uninformed to the point they “bought” crypto via their stockbroker – who scammed them.)
There are many exchanges that went down this road for one reason or another. For example, FTX gambled its real coins away and then sold people paper coins on the exchange (they later claimed they were “hacked” but that turned out to be a lie.).
The only way to really know if your Bitcoin exists is to withdraw it. Get it out of the exchange and into your own wallet.
That’s how you really know that your coins exist and you aren’t just a number on a website.
Side note: Some exchanges will publish “audits” of their crypto balances. This is an eye wash and a distraction. If an exchange doesn’t allow you to withdraw your coins and tells you they will publish a “proof of reserves” – RUN FAST. Sell everything, withdraw your money, and use a different exchange. If an exchange does not allow you to withdraw your coins, DO NOT use that exchange.
2) Exchanges get hacked.
There is no such thing as a trustworthy cryptocurrency exchange
And anyone who thinks otherwise has not been around for long.
Here is a small list of exchanges that have suffered security breaches (aka “hacked” and coins stolen):
Mt.Gox, BItcoin7, Bitcoinica, Picostocks, Flexcoin, Poloniex, Crypto RUsh, MintPal, Cryptsy, BItstamp, KipCoin, BTER, Bitfinex, ShapeShift, Yapizon, Coincheck, BitGrail, Coinrail, Bancor, Zaif, Coinbene, Bithumb, BITPoint, Upbit, KuCoin, Liquid, BitMart, Deribit, GDAC, FTX… and hundreds more.
And this list does not include hacks relating to DeFi platforms (Fulcrum, bZx, Eminence, Harvest Finance, Pickle Finance, Paid Network, etc. – all hacked).
When you leave coins on an exchange, you are trusting the exchange to not get hacked and have it’s coins stolen.
And time and time again, they get hacked.
3) Founders often rug pull users and steal funds.
Then there are exchanges which don’t get hacked but have their coins and assets systematically stolen by their founders. Of course they later claim they got hacked but often they just steal the money themselves (FTX is popular for doing this very thing).
Sometimes exchanges just lock you out for any reason. Call it pending KYC, or “we no longer provide services in your area” or any other reason, or just start asking you for too much documentation like your birth certificates.
And there’s nothing you might be able to do about it.
When you leave coins on an exchange, you trust the founders and employees of the exchange to not lock you out or steal your coins.
This is an extreme risk because crypto transactions are irreversible – if the founders steal your coins, there’s nothing you can do about it. You can sue the people later but you can’t get the coins back.
4) Exchanges shut down, go bankrupt, and disappear – with your money.
When you leave coins on an exchange, you trust the exchange to be around (going concern assumption). Sometimes exchanges just disappear without intimation – and take your coins with them.
This actually happened to me. I had about $20 worth of an altcoin on an exchange called Trade Satoshi. Since the amount was very small, I didn’t withdraw it or check the exchange at all.
Then, when I opened it – it didn’t exist anymore. It was shut down and I had lost the money I had held on it.
NEVER use an exchange that doesn’t allow crypto withdrawals
NEVER NEVER NEVER do it.
If the exchange does not allow you to withdraw your coins, this is a HUGE red flag and you should not use that exchange at all.
Here is the story of WazirX, an Indian exchange that got hacked:
WazirX is an exchange that doesn’t allow withdrawals and literally forces you to keep your coins with them.
Then BOOM – it gets “hacked” and loses half of all their user’s total assets. No one can verify if it was really a hack or an inside job.
The exchange then forces it’s users to pay for the hack via a “socialized loss” strategy which is really just a bunch of bullshit. Instead of the exchange and it’s owners bearing the costs of their failure, they force the users to bear the loss.
Even the users who didn’t invest in the coins that got stolen were forced to sacrifice ~50% of their coins into their “socialized loss” bullshit.
The exchange didn’t lose a thing – they just pushed all the losses on the users and still continue to force them to keep the coins with them by not allowing crypto withdrawals.
All these users essentially have no real recourse but to suck it up and bear the loss.
That said, it was entirely the users fault for keeping the coins on the exchange (in this case, using an exchange that didn’t even allow withdrawals).
Never ever make this mistake. You have been warned.
That’s all for today.
Hope this helps.
Your man,
Harsh Strongman
