How to keep your cryptocurrency safe after the FTX collapse

How to keep your cryptocurrency safe after the FTX collapse

The collapse of cryptocurrency exchange FTX has forced many to reconsider their overall approach to investing, from self-custody to on-chain verification of funds. This shift in focus was largely due to investors’ lack of confidence in cryptocurrencies. Into an entrepreneur after being duped by FTX CEO and co-founder Sam Bankman-Fried (SBF). FTX collapsed after SBF, and its accomplices were caught secretly reinvesting user funds, resulting in a loss of at least $1 Billion in customer funds. To regain investor confidence, competing cryptocurrency exchanges flaunted their proof of reserve to confirm the existence of user funds. Since then, however, community members have demanded that exchanges show their responsibility in safeguarding reserves.

With the self-proclaimed “most generous billionaire” SBF committing fraud in broad daylight with no visible legal consequences, investors must take a defensive stance when protecting their investments, investors need to take certain steps to maintain full control of their wealth, which is often considered cryptocurrency’s best investment practice.

Move your funds out of the crypto exchanges

Cryptocurrency exchanges are commonly used to buy, sell and trade cryptocurrencies for a small fee. While other methods, such as B. direct and peer-to-peer selling, are always an option, increased exchange liquidity allows investors to match orders and ensures no money is lost during the transaction. The problem arises when investors keep their funds in wallets provided and owned by the exchanges. Unfortunately, this is where most investors learn the “Not your keys, not your coins” lesson. Path. Cryptocurrencies stored in exchange-provided wallets are ultimately owned by the owner, which in the case of FTX users, was abused by SBF and its collaborators.

Avoiding this risk is as simple as moving funds from the exchange to a wallet with no shared private keys. Private keys are secure encryptions that provide access to funds stored in crypto wallets, which can be recovered using a backup phrase in the event of a loss.

Hardware wallet: The safest bet for storing cryptocurrencies

Hardware wallets provide full ownership of a crypto wallet’s private keys and restrict access to funds to only the owner of the hardware wallet. After receiving cryptocurrency from an exchange, users must voluntarily transfer their assets to a hardware wallet. Once the transaction is completed, the crypto exchange owners can no longer access the fund. As a result, investors who choose a hardware wallet no longer risk losing funds due to scams or attacks on exchanges. However, while hardware wallets contribute to the overall security of funds, cryptocurrencies remain at risk of temporary losses if a token’s value drops irrecoverably.

Hardware wallet vendors have seen a surge in sales as investors move away from storing their assets on exchanges.

Don’t trust; verify

In all the crypto crashes that have occurred this year, including 3AC, Terraform Labs, Celsius, Voyager, and FTX, the collapse in investor confidence has been a common and glaring theme. As a result, the slogan “Don’t trust, verify” has finally caught on with both new and seasoned investors. Several well-known cryptocurrency exchanges, such as Bitfinex, Binance, OKX, by bit, Huobi, and Gate.io, have taken proactive measures to demonstrate this Proof of Reserves. Investors could confirm the existence of their funds within the exchange itself thanks to the wallet information provided by the exchanges.

Although test reserve stocks provide a glimpse of an exchange’s reserves, they need to provide a complete picture of its finances, as liability information is often not publicly available. On Nov. 26, Kraken CEO Jesse Powell called Binance’s reserve test “willful ignorance or misrepresentation” because the data did not contain negative balances.

Binance CEO Changpeng Zhao dismissed Powell’s claims, stating that the exchange has no negative balances and will be verified in an upcoming audit. The three considerations above are a good starting point to protect crypto assets from bad actors. Some of the other popular ways to wrest control from crypto entrepreneurs include using decentralized exchanges (DEXs), self-custodial (non-custodial) wallets, and conducting extensive research (DYOR) on seemingly investable projects.

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