The prevailing wisdom online is that you should never keep your crypto on an exchange or in the hands of a custodian. Instead, you should store it all on a hardware wallet. We firmly disagree with this premise and offer an alternative to the popular "not your keys, not your crypto" mantra. And that is: "keep your crypto everywhere."
In the early days, keeping all of your crypto on a hardware wallet made sense, because the alternatives were new and the landscape horrific. Crypto holders lost everything on seedy exchanges like Mt. Gox and BTC-e (myself included), and they carry that pain to this day and warn newcomers. But modern custodians like Coinbase and Gemini are in a different league than Mt. Gox. They have the best engineers, have never been hacked, are insured, are easy to use, and can offer interest/staking benefits. What’s more, if they do suffer catastrophically, they’re so big that the entire crypto industry will suffer alongside them anyway.
I get it. Self-custody has advantages. Coinbase can freeze your account at their whim and their customer support is a disaster. The government can ban crypto and freeze your funds. In an emergency, you can take your hardware wallet to another country. You can yield farm. And so on, but the risks are just as high as outside custody.
The Internet is full of stories from engineers who’ve lost everything by making a custody mistake (losing their seed phrase, typing an incorrect seed phrase, a hard drive failure, a backup failure, their house burns down, having their seed phrase stolen, etc.). I’ve met many of them and they all wished they would have just kept their coins on Coinbase. And if bad things happen to engineers, how about the less tech savvy among us? Telling the grandmas of the world to buy a clunky hardware wallet, upgrade its firmware, navigate through a janky UI, and send a bunch of alien-looking transactions around is asking for trouble. Frankly, I hate using hardware wallets too, they’re like the devices you’d expect to dig up in a time capsule.
What we recommend is simple: if you have a small amount of crypto, do whatever’s easiest for you; odds are you’ll be fine. The vast, vast majority of people who’ve left their crypto on Coinbase have been fine. If you own a lot of crypto, then spread it around. Keep 1/3rd on a hardware wallet so if crypto Armageddon happens, you’ll have a decent stack. And keep the rest spread out over two custodians. Voila, you’re prepared for the worst. Even if the maid throws out your hardware wallet and its seed phrase, you’ll still have 2/3rd of your crypto left. Even if Coinbase freezes your account, you’ll still have 2/3rd of your crypto left. And so on. If you lean more toward self-custody, then buy two hardware wallets (one Trezor and one Ledger) and store them in two different locations. But keep 1/3rd on an outside custodian.
One final word of warning: not all custodians are created equal! For example, Robinhood and SoFi don’t let you withdraw your crypto, so stay away from them. Smaller exchanges are riskier, so stick to the very biggest ones. Foreign exchanges are a no-go because their laws can change on you. If you’re in a country where all the exchanges are dicey, then fine, custody it all yourself; just use multiple wallets.
The people who parrot "not your keys, not your crypto" are the digital equivalent of Depression-era folks who store their cash under a mattress instead of in a bank. They might be right that keeping SOME cash on hand is a good idea, but they're narrow-minded by ignoring the risks of inflation, robbery, and fires.
Remember, the best way to protect your crypto is to keep your crypto everywhere!
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