Where should you actually keep your crypto?

Keep what you are actively trading on an exchange that can prove it holds your money. Keep everything else in a wallet whose keys are yours. The line between the two is not a number somebody invented — it is the point where the annual cost of the safer option stops mattering next to what you would lose if the company holding your coins failed.

That sounds obvious. It is also the opposite of what most people do, because every part of the industry is built to keep your balance where it can earn fees on it. So this guide sets out what each option actually protects you from, using the same measurements behind our exchange rating and our hardware wallet rating.

The three options, and the risk each one removes

Every storage decision trades one risk for another. Nothing removes all of them.

• An exchange removes the risk of you losing your keys, and adds the risk of the company losing your money. You cannot verify your balance exists unless the venue publishes a proof of reserves — and most of the ones we researched either do not, or publish something that does not survive reading.
• A software wallet removes the company from the equation and hands you the keys, along with the job of protecting them. Its weak point is the device it runs on and the transactions you approve.
• A hardware wallet moves the signing step onto a device with one job, so a compromised computer cannot sign for you. Its weak point is that you can still approve something you did not read.

What an exchange actually promises

A balance on an exchange is a claim on a company. Whether that claim is backed is a question with a real answer, and most people never ask it. When we researched the custody position of 29 venues, the spread was not subtle: Kraken publishes a proof of reserves that includes total client liabilities, attested quarterly by a named accounting firm, with a personal proof each client can check their own balance against. At the other end, BitMart publishes no proof of reserves at all, and its own risk disclosure states that customer assets are covered by no compensation, insurance or protection scheme.

Both companies will happily hold your bitcoin. Only one of them lets you check it is there.

The second question is what happens after something goes wrong, and the answer is rarely what the press release said. Nearly every hacked venue promised to make users whole within days. We could only confirm it happened at a handful of them — and at BitMart, where roughly $196m was drained in 2021, reporting five weeks later and again ten months later found victims still unpaid.

When self-custody is worth the trouble

There is no universal threshold, but there is a useful test: if losing the balance would change your year, it should not sit with a company you cannot audit. A $79 device is cheaper than the fees on a single large trade, and our top-rated Bitcoin-only wallets cost less than $100.

The honest counter-argument is that self-custody moves the failure from a company to you, and people do lose money that way. The two failures that dominate are a badly stored recovery phrase and approving a transaction nobody could read. Both are solvable, and neither is solved by leaving coins on an exchange.

The setup that covers most people

For most readers, three tiers work better than one decision:

• A working balance on a licensed exchange you have checked — enough to trade with, and no more. Our exchange rating ranks 29 of them on custody evidence first, not on fees.
• A software wallet for the on-chain activity you actually do: swaps, applications, anything that needs signing regularly. Rabby simulates every transaction before you sign it and charges 0.25% on swaps against MetaMask's 0.875%.
• A hardware wallet for the part you are not touching this month. The device that wins our rating does so on one criterion above all: it shows you exactly what you are signing, every time.

What to check before you move anything

Whichever tier you are moving to, four checks catch most of what goes wrong.

• Send a test transaction first. On a small amount, on the exact network you intend to use, to the exact address. Every serious loss we have researched involved a step somebody skipped because they had done it before.
• Check the network, not just the address. The same address string on a different chain is a different destination, and support desks cannot reverse it.
• Write the recovery phrase down before funding the wallet, not after. A wallet you cannot recover is a wallet you do not own.
• Revoke old token approvals. Anything you granted a contract stays granted until you remove it — including approvals to routers that later turned out to be exploitable.

Backing is not the same as access, and a promise is not the same as a proof. Both distinctions cost people money every year.

The short version

Trade on a venue that can prove it holds your money. Hold on a device whose keys are yours. Keep the two amounts separate, and size each one so that the failure of either would be annoying rather than ruinous. Everything else in this category is detail.