One of the most important principles of cryptocurrency security is that you must control your own private keys. If you use an exchange or custodial wallet, you don’t have control of your coins. If something bad happens to the exchange, or the exchange does something bad to you, you will be out of luck. These are not just hypothetical risks; in the short history of cryptocurrency there have already been many tragic incidents of people losing their coins on exchanges and other custodial services.
If an exchange or other custodial service is hacked or victimized by insider theft or government seizure, customers who entrusted the exchange to hold their coins could lose everything. Two of the most famous examples are MtGox and Silk Road. Cryptocurrency transactions are irreversible, so if a hacker steals coins from an exchange, there is no way for the exchange to get the coins back. There is no equivalent of FDIC insurance for cryptocurrency exchange customers, so if an exchange is the victim of a major hack or insider theft, it will go bankrupt and the customers will have no recourse.
Another risk is that the exchange may arbitrarily decide to temporarily or permanently freeze your account and confiscate your coins. This can happen due to malicious exchange operators or government coercion. As governments feel more competition from Bitcoin and cryptocurrency, they are likely to become hostile and could implement aggressive policies without any warning.
Ballet wallets give you full and exclusive control of your own private keys. You can have peace of mind that you and you alone are in control of your own financial destiny.