How secure are fiat wallets?
As we’ve seen in the last year or so, things in the world of crypto are only as secure as the entity holding them. With crypto, the person who holds the keys and recovery phrase to a wallet is the person who ultimately controls it. So if you use a fiat wallet that’s part of an exchange, but have no way to recover it if it were to get lost, you are at risk of the money in it disappearing if the exchange folds or behaves badly because in reality, the exchange likely owns your wallet.
Fiat wallets, like other crypto wallets, range from being wholly exchanged-owned to wholly user-owned, and you’ll have to decide how much faith you have in your exchange before you choose the one that you think will suit you best. For most people, it makes sense to research your exchange and use their wallet, so you can easily transfer money and take advantage of all the features the company has to offer.
However, if you want to use less consumer-friendly exchanges, it might make sense to open an independent wallet to hold your fiat currency. If you do, you’ll be given a recovery phrase that you must keep safe, or you’ll never be able to recover your wallet if it’s stolen. It’s kind of the ultimate security system, where you can actually lock yourself out forever, losing everything inside.