It should be perceived that anyone asking this question is probably new to the crypto space and as a result, needs total security of his/her funds. To answer this question properly, you need to understand the difference between keeping your digital assets on an exchange and in a wallet.
An exchange is hosted online and allows for quick conversion of your bitcoin into altcoins and vice versa. Exchanges have inbuilt wallets which facilitate the storage of crypto on the exchange.
Exchanges support wallets for every cryptocurrency traded on them, with some exchanges like Binance supporting over 50 wallets. Cryptocurrency is usually kept on exchanges to facilitate the quick conversion of a certain coin/token to another.
Types of Crypto Wallets
On the other hand, a wallet is usually exclusively for storing cryptocurrency. There are mainly five types of crypto wallets which include an online wallet, mobile wallet, desktop wallet, hardware wallet, and paper wallet.
Online wallets usually run on the cloud and are easily accessible from any PC so far your password, and private key are in possession. In some cases, logging in to an online wallet might require prior activation from your email or require the input of your 2-factor authentication code if the option is available as seen in the case of wallets like Blockchain.info, Luno, Binance and Bittrex. In some cases, your online information can be leaked, and this makes online wallets the most susceptible types of wallets to hacking.
To possess a mobile wallet, all you’d need to do is install an app on your phone storing your cryptocurrency. The disadvantage of this type of wallet is being at risk of losing your funds once your phone is stolen or when it has a technical problem.
A desktop wallet can be used when you download a wallet on your PC and store them there. A big problem with this type of storage is when your PC encounters a virus that could compromise your PC security.
A hardware wallet is usually a USB drive and can make online transactions. Getting a hardware wallet could be quite costly, considering the fact that online and desktop wallets are free. They are considered very safe.
A paper wallet is a physically printed public and private key where funds can be sent from and received to your wallet directly. It is considered the wallet with the highest security.
Exchanges have been hacked severally in bitcoin’s short 10-year history. Crypto exchange, Mt. Gox was hacked twice in 2011, and 2014 with about 1.35 million Bitcoins lost to hackers. BitFloor had 24,000 bitcoins stolen from its exchange, Poloniex was hacked on 97 Bitcoin, relatively small, but quite unexpected for an exchange so popular and secure. Bitstamp was also hacked of 19,000 bitcoins in 2015, equivalent to $5 million. When these bitcoins were stolen or hacked from the exchanges, reimbursements were not offered to the users, and the funds have been lost since then.
From the short guide above, you should be able to determine whether an exchange or wallet is best for you storing your cryptocurrency. The facts have, however, pointed to wallets being the most secure form of cryptocurrency storage.