Cryptocurrency Security : The Journey from Exchanges to Cold Wallets

When you step into the world of cryptocurrency, the first question that pops into every new investor’s mind is: how do you keep your digital assets secure? Typically, when you begin your crypto journey, your cryptocurrencies are stored on an exchange. However, in recent years, particularly in 2024, a significant shift has been observed. According to a recent CCN report, over 47% of users have started moving their funds from exchanges to self-custody wallets (cold wallets). Why this change? The answer is simple:

security. Over the past few years, numerous major exchanges have fallen victim to hacking incidents, shaking user confidence. For instance, in 2025, Bybit lost $1.4 billion, and in India, two major exchanges, WazirX (₹2000 crore) and CoinDCX (₹365 crore), faced fund thefts. Fortunately, CoinDCX’s case involved an operational wallet, so user funds remained safe. But the real question is: are you willing to take such risks? Probably not.

That’s why, in this article, we’ll dive deep into understanding how crypto exchanges work, the risks associated with them, and how you can safeguard your funds using hot and cold wallets. We’ll also explore why self-custody wallets, particularly cold wallets, are the best way to keep your crypto secure for the long term.

Cryptocurrency Exchanges: How Do They Work?

When you start investing in Cryptocurrency, you typically use an exchange like WazirX, CoinSwitch Kuber in India, or Binance and Coinbase on a global level. These exchanges provide an easy way to buy, sell, and store crypto. But did you know that when you keep your crypto on an exchange, you don’t actually own it? Let’s break it down.

Deposits and Public Address

When you deposit crypto on an exchange, you have two options:

Fiat Deposit: You deposit Indian Rupees (INR) from your bank account and use them to buy crypto. The exchange charges a small fee for this process.
Crypto Deposit: You transfer crypto from another wallet or exchange. For this, you’re given a public address, a unique code you can share with others so they can send you crypto.

Here’s the catch: while this public address is in your name, the actual owner is the exchange. Essentially, you’re renting this address. The crypto you send to this address appears as a number on your exchange dashboard, but in reality, it’s stored in the exchange’s private wallet, where only the exchange holds the private key.

Private Keys and the Role of Blockchain

In the world of blockchain, the true owner of crypto is the one who holds its private key. This private key is like a digital password, consisting of a combination of 12 or 24 words derived from the BIP-39 word list, which contains 2048 unique words. The first four letters of these words are always unique, making them easier to remember and secure.

When you store crypto on an exchange, you don’t have access to the private key. This means your crypto is entirely at the mercy of the exchange. If the exchange gets hacked, goes bankrupt, or blocks your funds, you’re powerless. This is precisely why users are increasingly turning to self-custody wallets.

Risks of Exchanges: Why Hacking Is a Major Issue

Over the past few years, several major exchanges have been hacked. In 2024, Indian exchanges like WazirX and CoinDCX saw funds worth crores stolen. Globally, exchanges like Bybit haven’t been spared either. Why do exchanges get hacked so easily? Here are the main reasons:

Use of Hot Wallets: Exchanges store most of their funds in hot wallets, which are connected to the internet. These wallets are designed for quick transaction processing but are vulnerable to hacking due to their online nature.
Centralized Systems: Exchanges operate as centralized platforms, meaning their security relies on a single system. If this system is compromised, hackers can steal all the crypto.
Control of Private Keys: As mentioned earlier, the exchange holds the private keys to your funds. If hackers gain access to these keys, your funds are gone.

These risks have driven users to move their funds away from exchanges and into self-custody wallets, particularly cold wallets.

Self-Custody Wallets: Your Crypto, Your Responsibility

A self-custody wallet is one where you hold the private key to your crypto. This means you’re the true owner of your assets, and no exchange or third party can block or freeze your funds. Self-custody wallets come in two types: hot wallets and cold wallets. Let’s explore both in detail.

Hot Wallets : Convenience with Risks

Hot wallets are wallets connected to the internet, making them a convenient way to store and transact crypto. Some popular hot wallets include:

Trust Wallet: Supports over 100 blockchains and is user-friendly.
MetaMask: Primarily used for Ethereum-based tokens.
Phantom: Known for the Solana blockchain, with a clean and intuitive interface.

How Hot Wallets Work

When you set up a hot wallet, you receive a seed phrase of 12 or 24 words. This seed phrase is your private key, which you must keep secure. The seed phrase connects your wallet to the blockchain where your crypto is stored. You can use this wallet to send, receive, or transfer crypto to an exchange for trading.

Risks of Hot Wallets

Since hot wallets are connected to the internet, they’re vulnerable to hacking. If your device (mobile or computer) is compromised, hackers could access your seed phrase. Therefore, hot wallets should only be used to store small amounts of crypto for regular trading.

Cold Wallets : Maximum Security

Cold wallets are offline wallets, making them the most secure way to store crypto for the long term. There are two main types of cold wallets:

Hardware Wallets: Examples include Ledger and Tangem.
Paper Wallets: Where you write down your seed phrase on paper and store it securely.

Benefits of Cold Wallets

Offline Storage: Your private key is not connected to the internet, reducing the risk of hacking to nearly zero.
Long-Term Security: Cold wallets can keep your crypto safe for 25-30 years.
Full Control: With the private key in your possession, you’re the true owner of your crypto.

Hot Wallets vs. Cold Wallets: Which to Choose?

The choice between hot and cold wallets depends on your needs. If you trade regularly, hot wallets are convenient. But for long-term investments, cold wallets are the safest option.

Hot Wallet Recommendations

Trust Wallet: Supports over 100 blockchains and has a user-friendly mobile app. It can be used as a Chrome extension or mobile app.
MetaMask: Ideal if you’re investing only in Ethereum-based tokens.
Phantom: Perfect for Solana blockchain, with a clean and easy-to-use interface.

Setup and Security

When setting up a hot wallet, you’ll receive a seed phrase. Store it in a secure location, like a home safe or bank locker, and ensure it doesn’t fall into the wrong hands. If your device is hacked, this seed phrase will help you recover your crypto.

Cold Wallet Recommendations

Several cold wallets are available in the market, but two of the most popular are Ledger and Tangem. Let’s compare them and see why Tangem might be a better choice.

Ledger

Ledger is a hardware wallet that comes in the form of a USB-like device. Its popular models include:

Ledger Nano S+
Ledger Stax
Ledger Flex

How Ledger Works

When you set up a Ledger, you get a 12 or 24-word seed phrase, which you store securely. The device holds your crypto’s private key. To make a transaction, you connect the device to a computer via USB and verify the transaction using buttons on the device.

Drawbacks of Ledger

Complicated Process: For beginners, using Ledger can be complex due to the need for USB connections and button-based verification.
Battery and Software Updates: Some Ledger models have batteries that need periodic charging. Additionally, the software requires regular updates, or the device may stop functioning.
Replacement Needs: According to Ledger’s official website, the device’s lifespan is 3-5 years, after which it may need replacement.
Suspicious Device: Carrying a Ledger device during international travel might raise suspicion at security checks.

Tangem

Tangem is a card-based cold wallet that comes in a set of three cards. It’s more user-friendly and flexible than Ledger. Let’s look at its benefits in detail.

Benefits of Tangem

Easy and Mobile-Friendly: Tangem is incredibly easy to use. You simply download its mobile app and tap the card using NFC. This process is so simple that even beginners and non-tech users can use it.
Backup Cards: Tangem comes with three cards. If one is lost, you have two backup cards, plus the option to store the seed phrase separately.
No Battery, No Firmware: Tangem has no battery, so you don’t need to worry about charging or battery degradation. It also requires no software updates, as it’s based on a simple chip.
Lower Cost: Tangem is more affordable than Ledger. Using the promo code MRVYAS can get you an additional 10% discount, further reducing the cost.
Long Warranty: Tangem offers a 25-year warranty, making it ideal for long-term investments.
Security: Tangem is fully offline, reducing the risk of hacking to nearly zero. No hacking incidents have been reported so far.

How Tangem Works

When setting up Tangem, you receive a 12 or 24-word seed phrase, which you store securely. The cards hold your private key. To make a transaction, you tap the card on your phone’s NFC, and the transaction is verified. This process is so straightforward that anyone can do it without technical knowledge.

Why Choose Tangem?

User-Friendly: Its mobile app and NFC cards make it extremely easy to use.
Backup Options: Three cards and a seed phrase provide multiple backup options.
Cost-Effective: Cheaper than Ledger, with no need for additional upgrades.
Long-Term Security: A 25-year warranty and offline storage ensure safety for years.

Tips to Keep Your Crypto Secure

Keep Minimal Funds on Exchanges: Only store the amount of crypto on exchanges that you need for trading.
Secure Your Seed Phrase: Write your seed phrase on paper and store it in a safe place, like a locker. Never store it on a digital device.
Use Cold Wallets: For long-term investments, use cold wallets like Tangem.
Security Practices: Keep your devices updated, use strong passwords, and enable 2FA (two-factor authentication).
Focus on Education: Gain foundational and advanced knowledge about crypto and blockchain from platforms like Blockshala.

Conclusion

The world of cryptocurrency is exciting, but it comes with its share of risks. Keeping funds on exchanges might be convenient, but it’s risky. Hacking and bankruptcy threats can jeopardize your funds. Therefore, self-custody wallets, especially cold wallets like Tangem, are the best way to keep your crypto secure for the long term. Tangem’s ease of use, affordability, and offline security make it an ideal choice for both beginners and experienced investors.

If you found this article helpful, share it with others. Welcome to the world of crypto, and we’re with you on this journey!

Cryptocurrency Security : The Journey from Exchanges to Cold Wallets