Why Third-Party Wallets Offer More Control Than Exchanges

If you are a crypto user, you’ve almost certainly had to consider your custody solutions. After all, your crypto needs to be stored somewhere if you’re going to be able to use it. You must decide between keeping your tokens on an exchange or using a third-party wallet.

While there are many opinions on the internet, it is almost universally agreed that third-party wallets are better than crypto exchanges. In this article, we’ll explore some of the reasons for this.

Specialized Wallets

One of the significant benefits third-party wallets have compared to crypto exchanges is that you can access specialized storage solutions. Different cryptos are based on other blockchains; sometimes, you are better off using an optimized wallet. 

Say you have a load of Ethereum tokens, for example. You are much better off getting a third-party Ethereum wallet optimized to store all tokens based on the ERC-20 standard than keeping it on an exchange. The wallet is secure, allows self-custody, and also enables interactions with metaverses, P2E games, and decentralized exchanges (DEXs), 

Greater Control

One of the most popular sayings in the crypto space is ‘Not your keys, not your coins.’ This saying essentially points out that the only person with absolute power over tokens is the person who owns the wallet keys. When you store your tokens on an exchange, your access to them depends on your access to your crypto exchange account. The exchange, which holds the keys to the wallets they are stored in, can revoke your access to your account at any given time, meaning you lose access to the tokens. Outside of revoking access, you could lose your account password or suffer technical issues that lock you out of your crypto exchange. With this in mind, a third-party wallet is a better option, as you can access it alone. When you use a third-party crypto wallet, not even the wallet maker can lock you out of the account, and this is a level of control every crypto user should strive towards.

You also have your restrictions when it comes to how you spend your cryptocurrency. Many crypto exchange users have had to deal with long processing times to move funds above a certain amount out of the exchanges. While this is often for security reasons, it can prove quite frustrating. However, if you use a third-party wallet, there is no limit to how much crypto you can move in or out of your wallet at any given time and how often. 

Protecting Yourself From Exchange Issues

Some crypto users prefer to keep their funds in exchanges because they trust the high-grade security they come with. But a quick look at crypto history will show that even the biggest exchanges have suffered security hacks in the past, with millions of dollars lost in the process. If your funds happen to be on an exchange when it is compromised, they are effectively lost. The same is true if the exchange is mismanaged or suffers a major fault. In the best-case scenario, your exchange of choice might compensate affected customers, though this may even take months or years to complete. In the worst-case scenario, you might be left with no compensation, all of which could have been avoided if you used a third-party wallet. Needless to say, using a third-party wallet protects you from your exchange should things go wrong.