Funds can suddenly disappear from Exchanges
When it comes to investments, exchanges and centralized wallets are the first risky place to keep our assets. 90 percent of the time it may not be a problem to hold the assets on Exchanges but there is a high chance that things can go wrong and we might end up falling under the 10% category. It is always safe to keep the funds in wallets instead of exchanges. Funds get stolen now and then from exchange wallets. There have been such instances but I wouldn't say all exchanges are risky. But there is a potential risk of our funds getting stolen from exchanges or exchanges misusing our funds for their own needs.
There have been instances in the past where funds might suddenly disappear from our exchange accounts. Even though exchanges hold all our crypto on the chain, the data about users is kept on centralized databases. If they lose that data we will not be able to recover the coins we held. Another possibility is that some coins might go missing and there may not be good support from them.
Challenges in keeping the funds in wallets
Many people entering crypto find it hard to understand the concept of wallets. I know a few friends who had mined some coins a few years back and had held BTC in some random wallets. But today they say that they forgot their passphrase or private keys. They no longer have access to those wallets. This is the biggest challenge. People who are new to the crypto world will have to first understand the importance of wallets and keeping the keys safe. Only then they will be able to keep their funds in their wallets and have the keys safe.
Exchanges are the simple and easiest option. Some exchanges offer individual wallets to the users but the only problem is the keys would be held by the exchanges and we may not have access to those keys. Some exchanges would have the funds on their internal database instead of having it directly on Blockchain wallets. This way there is a chance to misplace the data and we might lose our coins. Of course, backup mechanisms and are a separate topic altogether.
What is the alternative?
The best alternative to keeping funds safe is holding them on-chain. There are some perks that these exchanges give us. Some include flexible savings and some include APR-based savings for a finite locking period. These options may not be available if we keep the funds on Chain. But there is a good level of security there. We might have heard the news about exchanges getting hacked and funds getting stolen. That is something that can be avoided if we have our funds on the Chain.
One of the best examples of on-chain investment is the HBD investment in Hive. We will be able to keep the funds safe and at the same time, we will also earn a decent APR for holding the funds. Keeping the funds as Hive gives us the opportunity to earn an APR of around 10% and keeping the funds as HBD in savings gives us a 20% APR. The interests can be claimed once a month and in addition to that, the biggest advantage we have is that the locking period for HBD is only 3 days and we can plan our further investments. This I would say is the best alternative for keeping the funds on an exchange.
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