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by Matt Frankel, CFP® | Updated July 21, 2021 - First published on April 21, 2021
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You don't need your own crypto wallet for Bitcoin, but it could make sense in some circumstances.
There are plenty of places to buy Bitcoin, but how should you store it? You can leave it in the same place you buy it -- for example, if you buy your Bitcoin through Cash App, you can hold it in your Cash App account as long as you want. On the other hand, you could hold your Bitcoin and other cryptocurrencies in your own wallet. In this article, we'll take a look at the security risks of both options, and whether a separate cryptocurrency wallet is necessary.
Leaving your Bitcoin at the exchange or brokerage you bought it from is generally a very secure option. While security protocols vary by exchange, there are three types of security that most top cryptocurrency exchanges use to ensure customer accounts are safe:
However, none of these security measures can protect you if your account is hacked and someone transfers your Bitcoin without authorization. So, while keeping your Bitcoin at an exchange is fairly safe from hacking incidents, it's very important to protect your passwords and other authentication measures. After all, once someone transfers your Bitcoin out of your account, it's gone.
Technically, even if you leave your Bitcoin with an exchange, you're using a Bitcoin wallet. However, it's known as a custodial wallet, since a third party has custody of your funds.
The other option is to get your own Bitcoin wallet, which gives you full control of your Bitcoin and its security keys (private codes that prove you own the Bitcoin). And there are a few different subcategories.
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There's no one-size-fits-all answer. But for most people, leaving Bitcoin in the custody of an exchange is perfectly safe, assuming you take proper steps to safeguard passwords and other authentication methods. However, if you have a large quantity of Bitcoin or you simply want your digital currency to be as secure as possible, a Bitcoin wallet can be a good idea.
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