Your ETH & tokens are on the Ethereum blockchain, regardless of what service you use to access them. When you move them, you are sending them from one address on the blockchain to another. These are lines of code. Your wallet file, hardware wallet, the interface you interact with, or your private key do not have funds in them. These are ways of access, which give you the ability to prove ownership over digital coins that are on the blockchain itself.
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If you use a client-side tool like MyEtherWallet, MEW Mobile wallet, or Enkrypt browser extension, then you have the private key or recovery phrase, and you control your assets and your key. You do not rely on Coinbase or Gemini sending your funds from their account to yours.
The upside is that you, and only you, control your keys. An exchange getting hacked won’t affect you. The downside is that you, and only you, control your keys. No one else has them, nor can they recover them, should they be lost.
If you do lose your private key or wallet file and password, you cannot prove ownership of an account, and you permanently lose access to your funds.
If you use an exchange like Coinbase, Gemini, Kraken, Polonix, Bittrex, then you have an account with that company, and they hold your ETH and your keys for you. They have their own account on the blockchain with all their and their customers’ funds in it. Then you have a username / password with them, on their servers, and they keep track of how much ETH they “owe” you.
This allows you to have the more traditional username/password account dynamic and do things like reset your password if you forget it, change your password if your password is compromised, and turn on 2FA. However, it also means that if the exchange loses ETH, it’s your ETH that is lost.
If you choose to move from an exchange to a wallet where you control your keys, you need to make sure that you have multiple backups, stored in separate locations, of your private key / keystore file/recovery phrase. This will prevent loss in case your computer crashes or your house burns down or anything else.
You also need to ensure you keep these keys secure. This means:
Don’t enter it on random websites.
Always ensure you are on the correct site or downloading from the legitimate repo/website.
Don’t email your key, send it to anyone, or post it online.
Don’t save it to cloud storage.
Don’t have Team Viewer or other remote access software on your computer.
And last but not least, use MEW offline!!
Consider getting a hardware wallet like Ledger or Trezor for larger amounts of crypto.
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