If you are a person who is used to storing huge amounts of bitcoins on exchanges, here are six reasons why you’d better not do that.
1. If keeping your coins on an exchange, you are not allowed to spend them freely. You have to ask the exchange for permission to use them. Upon withdrawing the funds, you can pay for whatever you want, whenever you want, and at a suitable fee.
Depending on the exchange terms, they may ask you to prove the source of income and send some identification documents or just block you because of going beyond the withdrawal limit. By keeping the coins in your possession, you can move any amount at any time and wherever you want. For example, there are no restrictions on playing in Bitcoin casinos or shopping online.
2. You may be misled that your coins are always available. The exchange promises to give them the moment you ask, but it may not be so. There are lots of unpredictable cases like the exchange hacked or the government interference when your coins can just disappear.
It is crucial to understand that the bitcoins you can see in your account are just a number on the screen. As long as the exchange has a private key, you don’t have any assets. You have only a password and a login.
3. When left on the exchange, the coins can be used in fractional reserve lending. It is profitable for the exchange, as it inflates the supply of Bitcoin. In the process of mass bitcoins withdrawal, exchanges may not have all these promised coins. As a result, exchanges go bust, and you don’t get your coins.
Fractional reserve is an illegal system when a depositor requesting his funds gets another depositor’s assets. In theory, there is no harm to any of them, but when many users want to get their coins, the exchange cannot fulfill this desire.
4. No one can know it for sure, but the withdrawal of bitcoins can be announced illegal one day. Due to this, the coins stuck on exchanges will become less valuable and inoperative. The real market will rely on peer-to-peer transactions among those who have their coins outside exchanges.
It is expected that governments will forbid Bitcoin withdrawals one day. Coins stuck on exchanges will not be used as cryptocurrency and become cheaper and almost useless.
5. There may be a group of people in power and want to depreciate Bitcoin by short-selling it on future markets. By extracting coins from exchanges, we can decouple the price of paper Bitcoin from the physical coins.
Thanks to miners who stabilize the price of Bitcoin, this warning is not so topical today. But there will definitely be a situation when the amount of coins available is not sufficient. That will enforce the difference between the price on paper and the real price requested by merchants.
6. There are various ways to make the most of Bitcoin, and they are absolutely unavailable when you stock the coins on exchanges.
Getting aware of how far cryptocurrency technology has developed will enable you to appreciate the real value of Bitcoin.
