I have about £8,000 in bitcoin that I hold on an investing and trading app that offers crypto. A friend told me that I should hold it in a crypto wallet instead.
What is the difference between holding crypto on a platform and in a wallet and does it matter as much as it used to?
Also, even though crypto itself is unregulated is there better protection from using a UK regulated platform?
Harvey Dorset, of This is Money, replies: It might be a comfort to you that you are in the same boat as most crypto investors.
According to 2021 data from the FCA, some 59 per cent of crypto investors store the crypto they have bought on the platform or exchange they used to purchase it.
Doing so means you can trade that crypto directly, but it also leaves it more vulnerable to hacks, the platform going out of business or the account being frozen.
This is a far greater risk with crypto than with stocks and shares, because crypto is currently unregulated, whereas your stocks and shares holdings on an FCA-regulated platform should be covered by the Financial Services Compensation Scheme.
It is often argued so-called crypto wallets are a more secure way to store bitcoin and other tokens, as they store the private keys associated with the crypto assets, but is this still the case?
Many platforms will allow you to transfer crypto to special so-called wallets they manage, while you can also get separate wallets too. This is Money spoke to two crypto experts to find out what they think is best.
In real life you can’t stick crypto in a physical wallet, so what should you do with it?
Pantelis Kotopoulos says the promise of crypto is financial independence
Pantelis Kotopoulos, UK country lead at Bitpanda, replies: When people start looking into crypto it usually starts much like any other asset. But if you ask anyone who has been in the industry for a while, the first thing they’ll tell you is that security is everything. You can’t separate the two.
The promise of crypto is financial independence, but with that independence comes responsibility and risk, and nowhere is that clearer than in how your digital assets are stored.
In traditional finance, investors rarely think about custody. If you buy a stock, you trust your broker and the wider financial system to record and protect your ownership. In crypto, the picture is more complex because the technology is still relatively new, and the ecosystem is decentralised by design.
This is where wallets come in. A crypto wallet is a tool that allows you to hold, send, and receive digital assets securely. And understanding the basics of how wallets work is one of the most important steps for anyone thinking of investing in crypto.
There are two broad types of wallets: custodial and non-custodial. A custodial wallet means that a platform like Bitpanda manages the keys to your assets on your behalf, much like a bank looks after deposits.
The advantage here is simplicity and security. You don’t need to worry about remembering long strings of passwords or what happens if you lose access to your device. You get professional-grade custody while still having easy access to your funds. For most beginners, this is the safest and most convenient option.
On the other hand, non-custodial wallets put you fully in control. You hold the keys, you decide how to store them, and no one else can access your funds without your permission. This appeals to investors who want maximum independence and are confident in managing their own security.
The downside is that if you lose your keys, there is no safety net. In crypto, the phrase ‘not your keys, not your coins’ is often repeated as a reminder of the responsibility that comes with full self-custody.
The bigger picture is that onchain wallets are not just about storage, they are the gateway to the onchain economy.
Whether it’s buying bitcoin, staking tokens, or exploring new applications like tokenised real-world assets, your wallet is the bridge.
Regulatory oversight in the UK is increasing in the crypto space.
With the upcoming changes introduced by the Cryptoassets Order, the standards around how wallets and custody are managed will only get stronger.
That’s good news for investors, because it means greater trust and less risk.
In the end, investing in crypto is about building a secure foundation. Understanding how wallets work, and picking the right solution for your needs, is the first step. With the right partner, crypto can be accessible. And that’s how it becomes not just a speculative asset, but a meaningful part of a long-term portfolio.
Glen Goodman says the safest solution is your own private crypto wallet
Glen Goodman, author of The Crypto Trader, replies: Here’s the bottom line – when you hold your bitcoin or other crypto assets on a platform – any platform – you could lose your crypto altogether.
If the platform goes out of business, the government is not coming to your rescue.
When you hold stock market investments with a UK-regulated firm, the government guarantees you up to £85,000 compensation if the firm disappears with your money. They don’t do the same for crypto investments.
Crypto platforms registered with the Financial Conduct Authority are arguably safer than firms that aren’t, because they’ve been granted permission to serve UK customers, so at least you know they’re a legitimate company and not a blatant scam operation. But you could still lose your crypto holdings if they go bust.
Some platforms like Revolut and Coinbase say they store their customers’ crypto securely and separately from the company’s own money.
This obviously gives customers some reassurance, but you’re still relying on your platform to behave honestly.
As we saw with the collapse of the crypto platform FTX and the conviction of its boss Sam Bankman-Fried, some bosses will lie until the moment they’re caught.
To be fair, there’s a world of difference between FTX and respectable companies like Revolut and Coinbase, but the lack of government protection for customers is still concerning.
The safest solution is to keep your bitcoin and other crypto assets in your own private crypto wallet. That way, your crypto is entirely in your own possession. Online or ‘hot’ wallets like Trust Wallet and Exodus are apps for your phone or computer.
With these apps, access to your crypto is stored privately on your own device. You still have to be careful not to be tricked by a scammer into giving away your ‘private keys’ (passwords).
And you don’t want to end up like James Howells, the Welsh IT worker who has campaigned for years to retrieve his laptop from a landfill site. It contains hundreds of millions of pounds worth of bitcoin.
He didn’t back-up his private keys, which would have allowed him to retrieve his bitcoin through the internet, even without the laptop.
If you want extra safety, you can buy a ‘cold wallet’ instead, from a company like Ledger or Trezor. It’s basically a glorified USB stick, so once you’ve put your crypto on it, you can unplug it from the internet and then nobody can hack it.
You can’t avoid crypto platforms completely, because you have to send them your cash if you want to buy some crypto in the first place, but once you’ve bought your crypto, you can transfer it quickly and simply into your own private crypto wallet.
Put simply, when your crypto’s stored on a company platform, you’re trusting the company not to lose it. When your crypto’s stored in your own wallet, it’s truly yours.
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