<p>Most exchanges are centralized services, operating in the way you've mentioned. So yes, the exchange owns the bitcoins, so there is significant counterparty risk involved with storing your coins on an exchange. </p>

CC BY-SA 3.0
2018-03-01T12:08:46.747Z
So, how does one determine the risk of an exchange?   I have been studying something called "Proof of Reserve" which seems to be a cryptographic way to prove a minimum fractional reserve.
GPB
CC BY-SA 3.0
2018-03-01T12:13:16.040Z
I think most people would agree that exchanges with publicly known owners/operators, and those that adhere to government regulations are likely less risky to use than an exchange located in a foreign country, with anonymous owners/operators. Remember too that exchanges are juicy targets for hackers, so even a legit operation could lose money to some unforseen bug in their system being exploited. Some sort of proof of reserves is good to ensure solvency, but doesn't stop an exit scam or hack from occuring. Best practice is to not store coins on an exchange for longer than necessary.
chytrik
CC BY-SA 3.0
2018-03-01T12:15:53.730Z
Just like banks, but without public accounts.   No wonder why so many fail!
GPB
CC BY-SA 3.0
2018-03-01T12:16:19.040Z
So, it's possibly to a) buy BTC then b) transfer to your own wallet?
GPB
CC BY-SA 3.0
2018-03-01T12:21:35.390Z
Sort of like a bank, I'm not sure what you mean by public accounts though. The bitcoin reserves/transactions of the exchange are more of a public record than any analogous bank reserves/transactions. Yes, it is of course possible to buy BTC, and then transfer to your own wallet. Just remember: at that point you are solely responsible for your funds. Financial sovereignty comes with a high level of responsibility.
chytrik
CC BY-SA 3.0
2018-03-01T13:40:18.780Z
By a bank, I mean an entity which publishes an income statement and balance sheet statement which one can use to approximate the creditworthiness of the institution (within limits of course).  Other than Proof of Reserve (which not many exchanges use), how to I get comfortable holding my BTC/ETH/etc with the exchange?
GPB
CC BY-SA 3.0
2018-03-01T13:40:58.723Z
I'd rather be responsible for my own account if the other holder does not provide me with information regarding solvency, governance, etc!
GPB
CC BY-SA 3.0
2018-03-01T18:45:16.400Z
@GPB historically, I think loss due to hacking/theft is more common than insolvency, and it is impossible to guarantee no thefts will occur. For this reason it is best practices to hold your own coins in a secure wallet. To find the most ‘legit’ exchange otherwise, see what I wrote above about public figure ownership/regulation. A US-based exchange is probably what you want.
chytrik
CC BY-SA 3.0
2018-03-01T12:07:12.637Z
2018-03-01T12:07:12.637Z
chytrik
<p>I have been told by some that bitcoin exchanges do NOT record BTC transactions by a buyer/seller on the blockchain, but rather hold them in their own name and ledger - 
eg, if I buy one BTC via an exchange, I do not own a UTXO on the blockchain, but simply have been 'assigned' a BTC that the exchange owns.  </p>

<p>This of course, would give rise to counterparty risk, even ignoring fraud risk. </p>

<p>Truth or fiction?</p>

<wallet><exchanges><utxo>
Do you 'own' Bitcoins purchased via an exchange?
GPB
# Do you 'own' Bitcoins purchased via an exchange?

(Asked by: username_0 on 2018-03-01)

I have been told by some that bitcoin exchanges do NOT record BTC transactions by a buyer/seller on the blockchain, but rather hold them in their own name and ledger -
eg, if I buy one BTC via an exchange, I do not own a UTXO on the blockchain, but simply have been 'assigned' a BTC that the exchange owns.

This of course, would give rise to counterparty risk, even ignoring fraud risk.

Truth or fiction?

**Tags:** wallet, exchanges, utxo


---

## 1 answers

### Answer by username_1 on 2018-03-01. Score: 2 | Accepted answer

Most exchanges are centralized services, operating in the way you've mentioned. So yes, the exchange owns the bitcoins, so there is significant counterparty risk involved with storing your coins on an exchange.

> **Comments:**
> **username_0**: So, how does one determine the risk of an exchange?   I have been studying something called "Proof of Reserve" which seems to be a cryptographic way to prove a minimum fractional reserve.  
> **username_1**: I think most people would agree that exchanges with publicly known owners/operators, and those that adhere to government regulations are likely less risky to use than an exchange located in a foreign country, with anonymous owners/operators. Remember too that exchanges are juicy targets for hackers, so even a legit operation could lose money to some unforseen bug in their system being exploited. Some sort of proof of reserves is good to ensure solvency, but doesn't stop an exit scam or hack from occuring. Best practice is to not store coins on an exchange for longer than necessary.  
> **username_0**: Just like banks, but without public accounts.   No wonder why so many fail!  
> **username_0**: So, it's possibly to a) buy BTC then b) transfer to your own wallet?  
> **username_1**: Sort of like a bank, I'm not sure what you mean by public accounts though. The bitcoin reserves/transactions of the exchange are more of a public record than any analogous bank reserves/transactions. Yes, it is of course possible to buy BTC, and then transfer to your own wallet. Just remember: at that point you are solely responsible for your funds. Financial sovereignty comes with a high level of responsibility.  
> **username_0**: By a bank, I mean an entity which publishes an income statement and balance sheet statement which one can use to approximate the creditworthiness of the institution (within limits of course).  Other than Proof of Reserve (which not many exchanges use), how to I get comfortable holding my BTC/ETH/etc with the exchange?  
> **username_0**: I'd rather be responsible for my own account if the other holder does not provide me with information regarding solvency, governance, etc!  
> **username_1**: @username_0 historically, I think loss due to hacking/theft is more common than insolvency, and it is impossible to guarantee no thefts will occur. For this reason it is best practices to hold your own coins in a secure wallet. To find the most ‘legit’ exchange otherwise, see what I wrote above about public figure ownership/regulation. A US-based exchange is probably what you want.  

---

