withdraw your bitcoins

Here are 6 good reasons to withdraw your bitcoins from exchanges

1th November 2023

It is undeniable that exchanges have played a vital role in the Bitcoin ecosystem by popularizing the buying and selling of bitcoin. However, over time, we can be surprised by the disproportionate weight that these platforms have taken on in the bitcoin universe. Although they can be “useful” for purchasing bitcoin, they are not at all recommended to keep on them. The multiple bankruptcies of exchange platforms are a constant and brutal reminder of the need not to leave your bitcoins on this type of platform.

Even more than a simple practice, it is essential to remember that Bitcoin is a peer-to-peer digital currency, designed precisely to do without an intermediary. This is even the very essence of Bitcoin: access to financial autonomy for all and this is what it represents an alternative to traditional finance.

In other words, the great advantage of using Bitcoin is that we can have absolute control over our funds, being free to spend them as you wish, without restrictions imposed by third parties or intermediaries.

Withdrawing your bitcoins from exchange platforms is also an act that allows you to safeguard your freedom and financial autonomy.

If you are not yet convinced, here are 6 good reasons to withdraw your bitcoins from centralized platforms.

1/ You will need authorization from the platform

If you leave your bitcoins in an exchange platform, whatever it may be, you will need to request authorization from the platform to withdraw them. Some platforms may even ask you (and this happens much more often than you might think) for proof of the origins of funds, which can be a painful and tedious procedure.

The platform may even decide not to allow you to remove them if it thinks your activities have questionable origins. Some people living in difficult regions (linked to political conflicts for example) have frozen the funds of certain people, simply because of their passports. Exchange platforms also add withdrawal fees (in addition to mining fees) not to mention the fact that daily limits may be imposed. If you are in an emergency or need/want to withdraw a large sum of bitcoin, this can be seriously problematic.

If your bitcoins are on an exchange platform, you lose your autonomy because you must respect the rules imposed by the platform.

2/ You take the risk that the platform closes its doors

This is really the ultimate reason, the one that has traumatized more than one bitcoiner since the existence of first exchanges. We can no longer count the number of exchange platforms that have suddenly closed their doors. We all remember the dramatic closure of MtGox, QuadrigaCX and more recently the equally painful one of FTX.

These are monumental failures which remind us to what extent the adage originally pronounced by Andrea Antonopolous which says “Not yours Keys, not yours coins” is to be engraved in our minds, forever.

If you leave your bitcoins on an exchange platform, you take the risk that this platform will one day close its doors, without you having the slightest chance of recovering your funds. Don't think that a platform is strong or important enough that it won't fall over. All platforms are susceptible to going bankrupt or being savagely hacked.

All.

Never forget it.

3/ Your bitcoins no longer belong to you

As soon as you buy or store your bitcoin on an exchange platform, be aware of one thing: they are no longer yours.

When you see your balance on a platform, you may think that you have your bitcoins all to yourself, safe and sound. Of course, this forgets that it is simply digital writing with a balance displayed on the screen. Bitcoins only exist on the blockchain and your bitcoins are then owned by the person or group that has the private key to the address where the bitcoins are located. If you do not have this private key (which you do not have on an exchange platform), then these bitcoins do not belong to you. They belong to the platform which naturally has the private key and which can move your bitcoins as it wishes. This is for example what happened with the FTX platform which confused its clients' bitcoins with its own bitcoins.

All it takes is for the platform to be hacked, for the CEO to think he's a philanthropist with a big heart (😝 hello Sam Bankman Fried) to rob you or the government decides to close the platform so that you lose everything, in the snap of a finger.

3/ Governments could prohibit owning bitcoin

Although it may seem incongruous, we are not safe from governments deciding to ban bitcoin. Although this ban cannot stop the functioning of bitcoin, it could result in the closure of exchange platforms. The bitcoins that are on the exchange platforms could then be frozen completely.

So, of course, the scenario seems very unlikely and without wanting to create paranoia in you, know that governments can decide to prohibit bitcoin withdrawals from external wallets. In theory, it is perfectly possible and you must remember that in 1933, President Roosevelt decided to confiscate all the gold owned by American citizens. Nothing prevents such confiscation from taking place in Orwelian future times.

However, states and governments, however powerful they may be, will not be able to freeze bitcoins that are on the blockchain and that are stored by people who have the private keys to move them. You must be aware of this important point. Bitcoins stored on exchanges can be frozen at any time.

Before crying over your lost bitcoins, withdraw them from centralized exchanges.

4/ You will not be able to use the Lightning Network

Bitcoin and its uses are constantly evolving and today, thanks to the implementation of Lightning Network, bitcoin payments are exploding. In other words, more and more people are using bitcoin to make payments.

It is indeed very practical (more expensive and faster) to pay using the Lightning network. You can do this simply via an LN compatible wallet, by scanning a QR-Code for your payment to be made.

However, if you have your bitcoins on an exchange platform, you will not be able to use the Lightning network. Few platforms have implemented this functionality and it remains less practical to do so on centralized platforms, even via their mobile applications.

Mobile wallets like BlueWallet, Phoenix or Walletofsatoshi (for complete beginners) are infinitely more practical than the wallets of centralized platforms which have far too much functionality to make payment practical.

5/ You limit power to the market and traders

When bitcoins are on exchanges, they can be readily used by the platforms and by experienced traders working for large groups and investment funds. Not all of them understand the philosophy of Bitcoin and they see it only as a speculative asset. In fact, traders can sell short and push the price of bitcoin downward, for example.

On the one hand, the company can use the fractional reserve to lend bitcoins to other customers and give the illusion to customers that the funds are still on the platform. In the event of a bank run, the company may find itself in imminent bankruptcy because they would not be able to return the assets to the depositors.

It is important to remove bitcoins from exchange platforms and reduce the supply of bitcoin available on exchange platforms to avoid their takeover by financial groups who can manipulate the price.

6/ You will be asked for your identity

Yes, we end this article with the most obvious reason but which is curiously more and more neglected: your private life! When you buy but (especially) when you want to withdraw your bitcoin, you will be asked for identity documents in the majority of exchange platforms. These will then be able to link your bitcoins with your identity. This is a form of intrusion into your privacy that frankly isn't necessary. Bitcoin is an alternative to banks and the traditional financial system in the sense that it is open and accessible to everyone, without restriction. You do not need to submit your identity to use Bitcoin.

If Bitcoin was designed, it was to avoid the need for a trusted intermediary for a currency to function. Also, the fact that there is no intermediary immediately removes the obligation to provide identity documents.

Take advantage of this immense and unprecedented freedom that Bitcoin offers us to regain your privacy.

Final word

We know that depending on your level of knowledge and familiarity with Bitcoin, this article will be more or less useful to you. It is true that he knows what bitcoin is and how to use it safely to be able to freely do without exchange platforms.

Actually, we just want to remind you that you can use exchanges to buy bitcoin, if you are not comfortable (yet) with peer-to-peer platforms like PeachBitcoin (which we recommend), but remember to withdraw them to an external wallet as quickly as possible. Again, choose a wallet non-custodial as BlueWallet where you have your own private keys, otherwise it amounts to leaving them on an exchange platform…

If you are not going to use your bitcoins and you want to “Hold” them for the long term, then in this case, you will be recommended to opt for an open source hardware wallet Type Trezor for example.


Note: No financial advice is given in this or any other article on this blog. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.

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