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Comment by SilverBirch | Hacker News Reader

There's two counter points to this. The first is that in terms of day to day likelihood of losing the bitcoin, you're probably generally safer with an exchange than holding the crypto yourself. Secondly, if the exchanges actually do collapse, then whilst you won't lose your BTC if you're not on the exchange, your BTC are probably going to be worth a lot less anyway, so you're still exposed to the risk of exchanges collapsing. If you're the average joe who has bitcoin (you probably shouldn't have bitcoin) but using an exchange isn't crazy.

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> The first is that in terms of day to day likelihood of losing the bitcoin, you're probably generally safer with an exchange than holding the crypto yourself.

The word you’re looking for is bank

> Secondly, if the exchanges actually do collapse, then whilst you won't lose your BTC if you're not on the exchange, your BTC are probably going to be worth a lot less anyway

This is nonsense. Hundreds of Bitcoin exchanges have collapsed over the last 10 years.

So it's not safe to keep in an exchange and not safe to keep outside of an exchange. Future of finance alright.

Future of finance: Your own mattress (cold wallet) or a bookie incorporated in a tax-haven (exchange)

> if the exchanges actually do collapse, then whilst you won't lose your BTC if you're not on the exchange, your BTC are probably going to be worth a lot less anyway

I hear this repeated often. Very short term, sure. But long term, shouldn't your slice of magical internet money pot be worth more simply because there's now less of it in total?

CEX collapses don’t result in the destruction of the coins they hold. It’s usually due to a hack/theft or greedy/risky investments of customer funds.

Practically speaking, coins proven stolen from a CEX are "blacklisted" on most of the other exchanges where crypto interfaces with fiat. If you happen to come into possession of coins that originated from a "blacklisted" address, you will have to prove that you obtained them legally.

So yes... a majority of stolen coins are for all intents and purposes, "burnt". Will the major exchanges care about coins stolen from a CEX 10 years ago? Probably not, but I guess we will cross that bridge when we get to it.

Of course, it is possible to "tumble" these coins, but it's an arms race between criminals and chain analysis, and while they can evade the analysts in the short-term, the crime is recorded in a distributed ledger for eternity allowing near unlimited opportunity for future review.

I keep being told by maxis that P2P crypto->fiat is alive and kicking. Looking at recent hacks (Axie, Crypto.com, etc) seems like tumbling is quite doable too.

It is surely seems crazy to me as long as these exchanges can withhold your money - which brings me to the question how this practice could possibly by legal. Is it in the contract of these pseudo-banking services that they can withhold their clients' money whenever and as long as they wish? Why would anybody agree to such a contract?

Because people aren't reading the fine print. They just assume it's a better bank until this happens.

While this might change in the future, I would guess bitcoin isn't technically money. It's more like a gift card some people will exchange for real money.

But even a gift card has more protection than crypto lol

Use exchanges for just that, exchanging it, but don’t let a central exchange hold it in their wallet.

This reply completely ignores everything GP said. You didn't address either of the (seemingly very valid) points they made.

Generally safer with an exchange I would disagree with, you’re at the whim of whatever is in the TOS for that exchange, it’s not a bank or securities broker. If you’re relatively good with keeping secrets/passwords then setting up your own wallet should be easy.

It seems like exchanges kind of are counterintuitive for a decentralized financial product (for holding your crypto). One could argue that exchanges that fail when people are selling off a lot of volume might not have a good business model. My naive brain thinks an exchange will make money on transactions so it shouldn’t matter if the exchange from crypto_bucks to USD is different. If volume falls drastically then maybe your operating costs are too high?

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