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The collapse of the FTX cryptocurrency exchange has forced many to rethink their holistic approach to investing.Starting with self-management and starting with verifying the existence of funds on-chain.This approach. The change was largely driven by the lack of trust crypto investors have in entrepreneurs after being duped by FTX CEO and co-founder Sam Bankman-Fried (SBF).
FTX crashed after SBF and its accomplices were caught secretly reinvesting user funds, resulting in the loss of at least $1 billion in customer funds. In an effort to regain investor confidence, competing cryptocurrency exchanges have aggressively displayed proof of reserves to confirm the existence of user funds. However, community members have since demanded that the exchange demonstrate its responsibility to protect its reserves.
Self-proclaimed ‘Most Generous Billionaire’ SBF cheats in broad daylight with no visible legal repercussions, requiring investors to remain defensive to protect their investments there is. In order to protect their assets from fraud, hacking and embezzlement, investors should take certain steps to maintain full control over their assets.
Crypto exchanges are widely used to buy, sell and trade cryptocurrencies in exchange for a small fee. Other methods such as peer-to-peer and direct selling are always an option, but the high liquidity of the exchange allows investors to match orders and not lose funds while trading.
The problem arises when investors decide to store their funds in exchange-provided and owned wallets. Unfortunately, this is where most investors learn the lesson the hard way: “It’s not your key, it’s not your coin”. is the property of its owner and, in the case of FTX users, has been misused by SBF and its affiliates.
To avoid this risk, simply move your funds from the exchange to a wallet without a shared secret key. A private key is secure encryption that allows access to funds stored in your crypto wallet and can be restored using a backup phrase if misplaced.
A hardware wallet provides full ownership over the crypto wallet’s private keys, thus restricting access to funds to the hardware wallet owner only. After raising cryptocurrencies from exchanges, users must voluntarily transfer their assets to hardware wallets.
Once the transaction is completed, the crypto exchange owner will no longer be able to access the funds. As a result, investors who choose hardware his wallet are no longer at risk of losing funds due to fraud or hacking that occurs on exchanges.
Related: What is Bitcoin Wallet? A Beginner’s Guide to Storing BTC
However, while hardware wallets increase the overall safety of funds, cryptocurrencies are exposed to the risk of temporary losses if the value of their tokens declines irreversibly. Hardware wallet providers are seeing a sharp rise in sales as investors gradually move away from storing assets via exchanges.
Losing investor confidence was a common and overt theme in all of the cryptocurrency crashes this year, including 3AC, Terraform Labs, Celsius, Voyager, and FTX. As a result, the motto “Don’t trust, verify” has resonated with both new and veteran investors.
Popular cryptocurrency exchanges such as Bitfinex, Binance, OKX, Bybit, Huobi and Gate.io are taking a proactive approach to demonstrating reserves. The exchange has provided wallet information that allows investors to self-audit the presence of funds within the exchange.
The Proof of Reserve provides a glimpse into an exchange’s reserves, but cannot provide a complete picture of its financials as information related to liabilities is often hidden from the public. On Nov. 26, Kraken CEO Jesse Powell called Binance margin ignorant or willful misrepresentation because the data did not include negative balances.
However, Binance CEO Changpeng Zhao refuted Powell’s allegations, saying the exchange has no negative balances and will be verified in an upcoming audit.
The three considerations above are a good starting point for protecting your crypto assets from bad actors. Other common ways to wrest control from crypto entrepreneurs include the use of decentralized exchanges (DEX), self-custody (non-custodial) wallets, and extensive research on seemingly investable projects (DYOR). there is.
