Along with Coinbase, Gemini, and a few others, the Kraken exchange, which has been running and standing strong since 2013, is only one of few United States-based exchanges that are actually well regulated; effectively removing the potential worries of people that the exchange might get shut down.
The question though is, is it actually safe for you to leave or hold your coins on the Kraken exchange? Let’s dive deep into it.
Table of contents:
Is Kraken legit?
Kraken is a registered business with their own physical offices located in multiple locations namely:
San Francisco, California, United States
Chiyoda City, Japan
Singapore
London
We can confidently say that Kraken is a totally legitimate business.
Kraken’s Security
Kraken’s cold storage – 95% of all Kraken’s funds are stored offline, air-gapped, and geographically distributed to maximize security; making a huge majority of their funds significantly harder to steal.
Kraken’s exceptional physical security – Kraken’s servers are claimed to be in “secure cages” that are under 24/7 surveillance by armed guards and video monitors.
Kraken’s security team – Kraken claims that they have an “expert team” dedicated to testing their systems “via every imaginable attack vector”.
Kraken’s bug bounty program – Instead of hackers trying to steal coins from Kraken whenever they found certain vulnerabilities in their system, they can simply report the vulnerabilities to Kraken instead. That way, hackers instead can earn money in an ethical, moral, and legitimate manner.
Kraken’s leadership: Kraken’s CEO, Jesse Powell, is one of the “Bitcoin OGs” and is a very reputable personality in the cryptocurrency space.
Reference: https://www.kraken.com/features/security
Is Kraken Safe?
Kraken seems to be a fairly safe exchange to use. Clearly, security is one of the things Kraken takes really seriously, which is something that most exchanges should be prioritizing in the first place.
But is it actually a good idea to leave your coins on Kraken, an exchange?
No. While Kraken looks secure enough like stated earlier in this article, leaving the majority of your funds that aren’t being traded on exchanges is almost never a good idea. If you’re more of an investor rather than a daytrader, withdraw your funds on a hardware wallet.
Even Jesse Powell himself, Kraken’s CEO, told people on Twitter to not store coins on exchanges that aren’t being actively traded while advocating the usage of hardware wallets:
PLEASE do not store more coins on an exchange (including @krakenfx) than you need to actively trade. Use @LedgerHQ or @Trezor. DEXes are not a panacea — look at The DAO. Open source just means exploits will be discovered sooner (probably not by good guys). 🙏 https://t.co/LmzhtCjpM0 Jesse Powell (@jespow) January 16, 2019
Reasons why you should NOT leave your funds on Kraken
Reason 1: Nothing is unhackable
Like said earlier, bitcoin and cryptocurrency exchanges have always been a very hot target for hackers, as hackers could potentially get away with millions and billions of dollars worth of coins if they ever successfully cracked Kraken’s system.
But is Kraken being hacked a possibility?
While it might look unlikely to happen, yes; it’s technically very very possible. In general, nothing is 100% unhackable, especially when we’re talking about websites. Even Google, Facebook, and other big websites are technically possible to hack, but due to their top-notch security, they just make it really really difficult for hackers to do so.
If you really think Kraken is very secure, well, people in the past thought the same with MtGox, Bitfinex, and Binance. Unfortunately, these exchanges have been successfully hacked in the past, each exchange losing more than a hundred thousand of their user’s bitcoins in the process.
Reason 2: “Not your keys, not your bitcoin”
While this quote is directly referring to bitcoin, it should apply to pretty much every single cryptocurrency. Only use wallets whereas you have control over the private keys/recovery seed, as that way, even if the exchanges you use gets hacked, your coins don’t get lost along with it.
Another reason is that one of the main selling points of bitcoin is that it’s unconfiscatable. When you leave your funds on centralized exchanges, it defeats that purpose. Exchanges, in general, can lock up your account(s) regardless if you did something wrong or not. A lot of people think that this easily fixed by simply submitting a support ticket to the exchange, but in some cases, it’s not. This occurrence has happened a lot more than most people think.
Reason 3: Exchanges are exchanges
Use exchanges for their sole purpose, as a platform to exchange your money for some bitcoin and other cryptocurrencies. Simply withdraw your funds after every transaction using exchanges like Kraken, the same reason why you wouldn’t leave your hard-earned money on money remittance centers and money exchangers. Instead, you simply withdraw the cash and lock them up in your personal safe, or you store them in your bank. The same thing should be done with bitcoin. Simply send them over to your personal wallet whereas you have control over the private keys.
Where do I keep my funds instead?
Mobile wallets(if you own small amounts of bitcoin)
Mobile wallets are wallets that, by it’s name alone, are wallets that are installed on your mobile phone. Mobile wallets are great simply because you have easy access to your funds with you at all times.
While Mobile wallets are great, we only suggest leaving funds on mobile wallets if your coins don’t cost that much. If you’re holding huge amounts of bitcoin or cryptocurrencies, we heavily suggest investing some money for a hardware wallet instead.
Why not desktop wallets? Especially if you’re using a Windows device, computer systems are a lot more prone to viruses compared to your phone. Malware and viruses that are mainly focused on trying to steal your coins are quite common nowadays. Losing your coins due to a malware/virus on your computer is one of the most common ways on how people lose their coins.
Advantages
Convenient – if you want to transfer funds, you can simply scan the QR code of the recipient address using your phone
Free – great mobile wallets are easily downloadable right now for free on the Android PlayStore and the iOS AppStore
Disadvantages
- Lack of security – while using a good mobile wallet is safer than using a custodial wallet, the security of mobile wallets may not be enough especially if you’re holding a significant amount of coins. While difficult and quite unlikely, mobile phones, in theory, can still be infected with malware and viruses. For people who hold a good amount of bitcoin and cryptocurrencies, we heavily suggest getting a hardware wallet.
Some great bitcoin mobile wallets
Hardware wallets(if you own significant amounts of bitcoin)
The Ledger Nano X
Hardware wallets are small devices made specifically for securely holding bitcoin and cryptocurrencies, and is small enough to fit in your pocket. We heavily suggest using a hardware wallet instead, if you’re holding a significant amount of bitcoin or cryptocurrencies. A hardware wallet is definitely your best choice for holding coins and tokens without fearing of getting hacked.
Advantages
- High security – your wallet’s private keys never leave the device. Hence, you could really do transactions even if the computer device you’re using is infested with malware and viruses, as long as you make sure that the coins are being sent to the right address.
Disadvantages
- Less convenient – You need to plug in your hardware wallet to your computer to make a transaction; though fortunately, the new Ledger Nano X has bluetooth functionality, giving you the option to send transactions using your mobile phone instead.
Some great hardware wallets
Ledger Backup Pack (recommended)
Ledger Nano X (recommended)
Must read: The Types of Bitcoin & Cryptocurrency Wallets
Conclusion
If there’s one thing that we want you to remember from this article, is the quote “not your keys, not your bitcoin”. The only way to have total control and to have significantly better security over your funds is to use a wallet that gives you access to your private keys/recovery seed. That way, even if for instance every single existing bitcoin/cryptocurrency exchange gets hacked, your coins will be untouched.
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