Topic: Never store your coins in a CEX wallet - page 2. (Read 715 times)

I don't use OKX, but, if they give you a universally accepted seed phrase, like a BIP39 seed phrase for example, then you can take the seed phrase and put it in any software wallet (electrum, sparrow etc.) and retrieve your coins. Which means that you can just withdraw your money without ever logging in to their website. Do they offer this feature? If so, great for them!

If a wallet is close source, you can stop right here. It's enough!

No reason to dig deeper to find information like it is a close source wallet built up by a centralized exchange team, a complete new team, a senior team with good history & reputation, or a senior team with bad reputation like scammers.

Honestly, I see no need to dig deeper for these information. If you are curious, you can do it but it takes time and I don't want to waste my time for searching something no longer important with me and my fund.

Open source or close source, if a wallet is confirmed as close source, I stop my research on it instantly.

Now something concerns me and I do not wish to look stupid in changing the topic title. I know very well that custodial wallets do not provide seed phrases to its users, but in the case of OKX wallet, they are allowing users to generate seed phrases by themselves and certainly has the features of a non-custodial wallet, and since my experience is majorly with them is the topic not better rephrases as this. "Do not trust Non-custodial wallets that are closed source especially those owned by a CEX"?

Let's have a quick thought on this

Just avoid anything that has to do with CEX for storing of your coins. Their so called DEX wallet or exchange that has association with CEX aren't fully decentralized. Trustwallet is an example as they might claim to be decentralized but they aren't open source so their codes can't be verified.

There's a new trick that CEX use, they acquired already functioning DEX products and convert them to whatever they wish but after the acquisition, people don't realize that the project/products that they used to know to be decentralized isn't anymore. For most people they can't do without using a CEX but their uses should only stop at purchasing Bitcoin or altcoins. The rest should be done outside the exchange to have fully control over your Bitcoin.

Yeah, I suggest you changed the topic to suit the narrative imo.

It's indeed a great topic per se and people will learn from your experience in one way or the other. Wallet associated with exchanges are not entirely bad but you must know the risk involved. Keeping your funds/assets in such wallet is not in any way different from saving your money in the traditional banks and there's chances that the exchange might face attacks and your funds are in danger too. Advisably, you should always send the amount you want to use instantly to exchange and keep your main asset in self custody wallet in which you have the private key.

Non-custodial or also called as self-custodial, means the wallet private keys/ mnemonic seed are given and owned by the user, and user can download, verify and install that wallet software and create a wallet offline.

Open-source means the user can review the wallet software source code, or the community can do it as the wallet is reproducible with open-source code, and there are many reviews about it like the following wallet reviewing website.

https://walletscrutiny.com/

I appreciate the detailed explanation from you concerning the exchanges and wallets, maybe I mixed things up earlier. I don't really know if it's right to change the topic now to the one you pointed out??

Custodial wallets have dealt with me in the past and I learnt my lessons the hard way and I think others need to know, prompting me to put up this topic.

I understand your points perfectly because I have had similar experience with both Binance and OKX. However tranthidung was also correct in his correction. He was trying to make you familiar and know the difference between a wallet and exchange. When it comes to wallet types, it can either be custodial or non custodial but if it has to do with exchanges, that's when you have centralized and decentralized exchanges. You seem to mixed both together while there's distinction. The wallets associated with these exchanges are known as custodial wallets because you allowed the CEX to keep custody of your wallet seed. In that regard, your thread ought to read "Never store your coins in custodial wallet".

Back to your discussion, I still can not trust wallet that emanate from these exchanges even if they claimed it is fully non custodial wallet. They even have option to import your other wallets from another source. I can't remember creating a wallet on Binance aside using their exchange services but was asked to input the keys to recover my wallet or create a new wallet but will lose all assets in the previous wallet. I had to create another one knowing I have no assets in the said precious wallet. In fact, I don't even know when I created it.

I already know they are independent from your exchange account thou. I won't still advise anyone to keep their assets in the exchange claimed non custodial wallet because they can not be trusted. I created the wallet to perform a task that required it and not because I want to use it.

You might be using the terms custodial/non-custodial and centralized/decentralized wrongly. Let's leave centralization vs decentralization alone for a bit. What you want to use is a popular non-custodial and reviewed open-source wallet. Why? Because you are the only one who owns the keys and enough people (hopefully) have checked and determined that the wallet is safe. The exact opposite is a custodial wallet, which is nothing else than an account that you can access, but in order to spend from that account, a third party has to allow you to do it.

Enough about custody. Let's mention a few words about decentralization. A wallet must not be decentralized for it to be non-custodial. Let's take Electrum as an example. It's non custodial and decentralized in the sense that anyone can run their own Electrum server, you don't have to rely on a primary server, and you can connect to a long list of servers operated by other people. But if Electrum only allowed you to use one server that they operate, it wouldn't affect the non custodial nature of the wallet. You coins wouldn't be less secure on the blockchain because the wallet and its servers are just windows that allow you to see what's on the blockchain. Those windows can break or be dirty and not display correct information, but it doesn't change the truth that is on the blockchain.

A decentralized wallet is a protection against a single point of failure. If you can't see out of one window, move on to the next one. It has no effect on the custody and security of your coins as long as it's a non-custodial wallet.

Storing in cold storage doesn't have to do with privacy, but with security.

So, buying from a CEX, using KYC and then sending to a cold wallet, doesn't erase history. This means that there is a submitted transaction in the audit records, where you (the real you) used X amount of dollars to buy Y amount of BTC and then withdrawed this amount.

My opinion is that if you choose to follow the pattern above, there is nothing wrong. Just be aware that there is no "privacy" in this.

For me the problems start for people who buy and hold BTC on CEXs. Because this can be proven devastating in case the CEX decides to prohibit withdrawals. Essentially you have a false idea of "owning BTC" where in fact you "give your BTC to a CEX to hold it for you".

So to summarize:

1. Buying with CEX and holding BTC there: BAD security, BAD privacy
2. Buying with CEX and holding in your own wallet: GOOD security, BAD privacy
3. Buying P2P and holding in your own wallet: GOOD security, GOOD privacy

However, even if you do the (3), there is nothing to guarrantee you that you 'll be perfectly secure and private. You just increase your levels of security and privacy expotentially.

Now, finally, if you ever wanna choose from the 3 options above and you can't do (3), please never consider even for a second to choose option (1) instead of (2).

Keep this mentality and you will be good: Money in CEXs can just be considered lost money and if you are lucky, you may get them back in the future.

It's good to separate your coins in more than one wallet, even in Bitcoin, it's good to have your surveyor coins in an exchange and you're holdings in your DEX wallets. It helps you limit your access to your main storage and reduces the rushed of it being compromised, furthermore you can still split your holdings into two DEX wallets to avoid putting all your eggs in one basket.

I like the idea of keeping Bitcoin and altcoins separately, separation of various concerns is very beneficial in the crypto space for precision purposes.

Finally, something on topic after all the NOISE I scraped away. Keeping your coins in a CEX is dangerous I agree, and keeping it in a CEX wallets with seed phrases thinking it's DEX is a very big mistake. We need to prioritize non-custodial and privacy offered from open source DEX wallets to further enhance the security of our coins.

You are very correct. The Op, looking at his history does not understand many things and misleading people about bitcoin investment. The first thing to understand in bitcoin is the basic concepts of bitcoin and such "What is Bitcoin?" Year of creation, year of launched, what the Bitcoin whitepaper talked about bitcoin, then where to buy and store bitcoin. And be able to identify the differences of custodial wallets and non custodial wallets.
Exchanges are not wallets but they have wallet address. But they can be called Bybit Account, Bitget Account. They are accounts because we open account with them and submit KYC to be bonafide user of the exchange. There is no seed phrase in those  exchanges as a user but the creators of the exchange control your account. Exchange has many functions, trading, buying and selling and they are called custodial wallets and it is called custodial wallets because you can buy Bitcoin and keep it there for a short term investment and sell it out within a short period of time but it is not advisable for long term investment. Though Op does not believe in short term investment, in fact he believes that there is nothing like short term investment and if it is short term then it is a trading. So he only have long term investment and trading and that is also misleading information.
And another way one can buy Bitcoin as stated clearly in the whitepaper is p2p. Where one can purchase Bitcoin direct to his self custodial wallet without third party exchange (a.k.a. CEX). But it is good you use CEX for either trading, buy and sell for short term. While Non custodial wallets for long term hodling.  Keeping Bitcoin in CEX is dangerous because it can be frozen, seize, blocked or site or app collapse. And that is where " Not your Key, Not your coins" phrase came to an existence.

Yeah , the thing is that the reason some folks still prefer holding on exchanges is because they don't have proper knowledge on how this space works (crypto space).

I can use myself as an example back then I was still new in this space I usually store or should I say hold my tokens in Cex wallet until , I found this forum , I now began to see the beauty of privacy.

Now I don't even think of holding my Bitcoin on exchanges, I now hold my tokens on Dex wallet I know is not to save there but Hardwallet kinda expensive but with time am going to get one some day , to secure my funds well ( though there are still disadvantages that's why one need to apply caution) .

Another thing I dislike Trust wallet is it allows users to store both bitcoin and altcoins that is convenient, but personally I see it is not safe practice.

My approach is different, I use a wallet to store only bitcoin, and other wallets to store altcoins. I never want and actually use one wallet to store both bitcoins and altcoins. If that wallet is compromised or if that wallet software, extension has technical issues, I can lose my bitcoin. I value bitcoin more than altcoins and I don't want to put it into one basket with altcoins.

As much as this advice is openly available for all to read and see everywhere and the bad legislation in some countries of course a CEX is a no no, unfortunately I think what pushes many to store coins on a CEX are things like high transaction fees and people want to cut on these, hustles like peer to peer trading (p2p), leveraged trading, and for obvious reasons "stubbornness "**guilty for this one**

But of course,  if you are going to be storing coins for the long term then opt for cold wallets to give your coins a safe haven and your own peace of mind.

I understand what you mean but I think the right word is Custodial and Non custodial wallet instead of decentralized wallet.

I have also seen Exchanges develop their own web3 wallet within the same exchange platform which they believe is different from the main exchange wallet and they make people believe that with the seed phrase it is actually a non custodial wallet and that people assets are not under their control but I don’t buy that at all.

I will not advise people to believe and use exchanges wallet they should make use of a non custodial wallet not linked to any exchange at all, but many people who don’t have this knowledge will always fall for this and believe the wallets are actually safe. Centralized exchanges wants to make people believe that their assets are safe in their hands but since people are not storing coins on their platforms they now came up with this wallet of a thing.

Some centralized exchanges are trying to drag people attention to their wallet they call decentralized wallet, which to me is just a wallet they are still controlling, and the main reason for these keys is to allow you to be able to use multiple wallet with different seed phrases; but in my own understanding, they are still in control of everything because I can see that for OKX you can switch activities from either using the wallet or the exchange which simply means that they can short all of them down when they wish.

I never try any of their seed phrase in other so-called decentralized close source wallets, but I don’t think these wallets are safe, it will just be the same as leaving your money in the centralized exchanges.

I'd advise against having your funds on a CEX because it's not safe, except of course you're a day-to-day trader. If Binance gets hack or shuts down by the authorities, you could lose your funds.

Unstoppable wallet is a non custodial wallet that supports multi coins and comes highly recommended. Should incase you want to go for it, don't forget to download only from the official website.

I'm not sure he's talking about Trust Wallet, I think he is talking about another wallet, the official one from Binance(Binance Wallet) otherwise he would have clearly named it IMO. Anyway, Trust Wallet is not open source so I agree it shouldn't be used as a cold wallet, but if you don't need to hold much funds on it, I think it's a pretty good multicoins hotwallet offering interesting and convenient features for Web3 especially.

Well, in such cases where the platform allows you to withdraw your assets, it might not be that big of an issue; however, despite this fact, it's not a very good idea to keep your funds in a centralized environment because then what's the point of using cryptocurrencies? If you are a trader and you use a specific amount of funds for your trading activities on a daily basis, that's a different thing, but keeping your assets in a centralized exchange or wallet with the intention of holding them for the long term is a bad idea.

When it comes to web3 wallets that most centralized platforms, such as Binance, Bitget, and OKX have these days, I don't think many people use them for storing their assets, these wallets are only good for testing or using web3 services and platforms where you connect your wallet to do certain operations and only fund such wallets when you need to do something.