In my guide to buying Bitcoin, I advise most beginners to send their first purchase to an exchange instead of a private wallet.
This goes against the standard advice in most crypto circles, which is to avoid keeping coins on exchanges whenever possible.
The reason people say this is because exchanges are not heavily regulated and are not government insured, meaning if an exchange goes bankrupt or gets hacked, you lose your assets.
This has happened multiple times in the past with Mt Gox, Celsius, Voyager, Bitfinex, Cryptopia, FTX and several more.
For this reason, it’s usually advised to keep your assets in private wallets.
However, my advice to beginners is that exchanges are actually the better option to start with.
- Crypto exchanges allow you to access your crypto with a basic username/password system
- Crypto exchanges allow you to easily buy/sell other coins
- Crypto exchange wallets are easier to set up
- Crypto exchanges allow you to do many more things within the crypto ecosystem, which is a great learning tool.
#1 in that list is the main reason.
Using an email username/password is familiar to everyone. If you forget your password to your crypto account, you can simply reset it like you can with your Facebook or Linkedin password. You cannot do this with a private wallet. In a private wallet, if you forget your password/backup, your coins are gone forever.
I remember when I first got into crypto, getting my head around how private wallets worked took me a long time. This is a big problem I find in crypto – the crypto bros always assume everyone is a tech nerd and they’ll understand everything right away. The opposite is true. I’ve tried explaining the idea of seed word backups to several friends (and also my parents) who simply don’t get it. Crypto is a different language to many people.
The other reason I think exchange wallets are a good idea for beginners is the risk isn’t actually that big.
People always say – if you leave your coins on exchanges, there’s a risk you’ll lose everything!
However, we’re talking about people new to crypto. People who are new to crypto will only be purchasing small amounts to begin with. Say you purchase $150 in Bitcoin and you “lose everything”. So what? It’s not a big deal. In fact, what’s the one thing we always tell crypto beginners? Only invest what you can afford to lose.
And what makes this advice even more obsolete is the fact that even with a private wallet, there’s still a big risk of losing everything. I would actually wager more crypto has been lost in private wallets than in exchanges over the years!
This is because people lose their keys to their wallets all the time, and as I said earlier, once you lose them, there’s no way to get them back.
Take this guy for example:
I bet you this guy is wishing he had kept his Bitcoin on an exchange instead. These stories are not uncommon. In crypto news, we see this all the time.
So this is my advice re wallets for newcomers to crypto:
- For your first few purchases, keep your coins on exchanges. I use and recommend Binance.
- Educate yourself on private wallets.
- Set up some soft wallets (Exodus, Trust Wallet etc) and see which ones you like. Learn how to record and store backups, sending and receiving coins, and restoring wallets on different devices. Test everything and make sure you know how it works! Once you do, you can start moving some of your crypto to these private wallets.
- Once you are ready to start investing a significant amount into crypto (say, into the thousands), purchase a hardware wallet and store all (or majority) of your crypto there. I use and recommend Trezor.
Hope that helps!