After The FTX Crash, Here’s How to Keep Your Cryptocurrency Safe
Sam Bankman-scam Fried’s of stealing money from users has caused investors to look for ways to protect their investments.
When the FTX crypto exchange went down, many people had to rethink how they invest in general, from self-custody to making sure funds exist on the chain. The main reason for this change is that crypto investors no longer trust entrepreneurs after FTX CEO and co-founder Sam Bankman-Fried tricked them (SBF).
After SBF and his friends were caught secretly reinvesting users’ money, FTX went down, and at least $1 billion of client money was lost. In order to get investors to trust them again, competing crypto exchanges showed off their proof-of-reserves to prove that users’ funds were real. But since then, people in the community have asked the exchanges to show what they owe to protect the reserves.
Since SBF, who calls himself the “most generous billionaire,” is committing fraud in broad daylight with no obvious legal consequences, investors must stay on guard to protect their investments. Investors must take steps to keep full control of their assets to protect them from fraud, hacking, and theft. These steps are often thought of as best crypto investment practices.
Get Your Money Out Of The Exchanges
People often use crypto exchanges to buy, sell, and trade cryptocurrencies for a small fee. Even though there are always other ways to sell, such as peer-to-peer and direct selling, higher exchange liquidity lets investors match orders and make sure that no money is lost during the transaction.
The problem comes up when investors choose to keep their money in wallets that the exchanges provide and own. Most investors have to learn the hard way that “not your keys, not your coins” is true. Cryptocurrencies kept in wallets provided by an exchange belong to the owner in the end. In the case of FTX users, SBF and its associates took advantage of this.
To avoid this risk, just move the funds out of the exchange and into a wallet where the private keys are not shared. Private keys are safe encryptions that let you access the money in your crypto wallet. If you lose your private key, you can use a backup phrase to get it back.
Hardware wallet: The Safest Way To Store Bitcoins
Hardware wallets give the owner full control over the private keys of a cryptocurrency wallet. This means that only the owner of the hardware wallet can access the funds. After buying cryptocurrency on an exchange, users must move their assets to a hardware wallet on their own.
Once the transaction is done, the fund will no longer be accessible to the owners of the crypto exchange. So, investors who choose a hardware wallet won’t lose money to scams or hacks that happen on the exchanges.
But even though hardware wallets make it safer to store money in general, cryptocurrencies are still at risk of permanent losses when the value of a token drops in a way that can’t be recovered. As investors move away from storing their assets on exchanges, sales of hardware wallets have risen sharply.
Don’t Trust, Verify
Investors’ trust was broken in all of the crypto crashes that happened this year, including 3AC, Terraform Labs, Celsius, Voyager, and FTX. Because of this, the saying “Don’t trust, verify” has finally gotten through to both new and experienced investors.
Bitfinex, Binance, OKX, Bybit, Huobi, and Gate.io, all of which are popular cryptocurrency exchanges, have taken steps to show off their proof-of-reserves. The exchanges gave investors information about their wallets so that they could check for themselves if their funds were still in the exchange.
Proof-of-reserve gives a glimpse into an exchange’s reserves, but it doesn’t give a full picture of its finances because information about its debts isn’t usually made public. On November 26, Kraken CEO Jesse Powell called Binance’s proof-of-reserve “either ignorance or intentional misrepresentation” because the data did not include negative balances.
But Binance CEO Changpeng Zhao shot down Powell’s claims by saying that the exchange has no negative balances, which will be checked in an upcoming audit.
The above three things are a good place to start to protect crypto assets from bad people. Some other popular ways to take control away from crypto entrepreneurs are to use decentralized exchanges (DEX), self-custody (non-custodial) wallets, and do a lot of research (DYOR) on projects that seem like good investments.
