How to protect your encryption after FTX failure

The failure of the FTX crypto exchange has forced many to reconsider their entire approach to investment – from self-protection to ensuring the existence of the money chain. This change in approach was mainly prompted by crypto investors’ lack of trust in entrepreneurs after being misled by FTX CEO and co-founder Sam Bankman-Fried (SBF).

FTX collapsed after SBF and its affiliates were caught siphoning off users’ funds, at least $1 billion in client funds. Efforts to regain investor confidence have seen competing crypto exchanges actively mirror their backup certificates to ensure the existence of users’ funds. However, members of the community have since asked the exchange to show their debt to maintain the repository.

With SBF, a self-proclaimed “very generous billionaire” is running a scam in broad daylight, investors need to be on the defensive when it comes to protecting their investments. To protect assets from fraud, theft and misappropriation, investors should take certain steps to fully control their assets – often considered best crypto investment practices.

Move your funds from crypto exchanges

Cryptocurrencies are widely used to buy, sell and trade cryptocurrencies with minimal fees. While other methods, including peer-to-peer and direct sales, are always an option, a high-volume exchange guarantees that investors can adjust orders and avoid financial losses during the transaction.

The problem arises when investors decide to hold their funds in wallets issued and owned by exchanges. Unfortunately, this is where most investors learn the lesson the hard way that “your keys are not your coins.” Cryptocurrencies stored on wallets provided by exchanges are ultimately owned by the owner, which is misused by FTX users at SBF and its affiliates.

Avoiding this risk is as simple as moving the money outside of the exchange to a wallet that does not have a shared private key. Private keys are secure encryptions that allow you to access funds stored in a crypto wallet, which can be misplaced using a backup phrase.

Hardware wallet: the safest bet for storing cryptocurrencies

Hardware wallets provide total ownership over the crypto wallet’s private keys, thus limiting access to the funds to only the owner of the hardware wallet. After purchasing from cryptocurrencies, users must voluntarily transfer their assets to a hardware wallet.

Once the transaction is completed, crypto exchange owners cannot access the funds. As a result, investors who choose a hardware wallet do not have the risk of losing their money due to fraud or hacking on the exchanges.

Related: What is Bitcoin Wallet? A beginner’s guide to storing BTC

However, while hardware wallets add to the overall security of funds, cryptocurrencies are at a constant loss when the value of tokens irreversibly declines. As investors gradually move away from storing their assets on exchanges, hardware wallet providers have seen a sharp increase in sales.

Don’t believe it, check it

In all of the crypto crashes this year — including 3AC, Terraform Labs, Celsus, Voyager, and FTX — breaking investor confidence was a common and clear theme. As a result, the motto ‘Don’t trust, verify’ has finally resonated with both new and seasoned investors.

Popular crypto exchanges including Bitfinex, Binance, OKX, Bybit, Huobi and have taken proactive measures to demonstrate their credentials. The exchanges have provided wallet information that allows investors to independently check the existence of their funds in the exchange.

While proof of reserve shares clues about the exchange’s stock, it doesn’t provide a complete picture of the financials, as information related to liabilities is often not made public. In the year On November 26, Kraken CEO Jesse Powell called Binance’s assertion “ignorance or deliberate misinformation” because the data did not include negative balances.

However, Binance CEO Changpeng Zhao denied Powell’s claim, stating that the exchange has no negative balance and said it will be verified in an upcoming audit.

The three ideas above are a good starting point for protecting crypto assets from bad actors. Some popular methods of removing control from crypto entrepreneurs are decentralized exchanges (DEX), self-sustaining (non-custodial) wallets, and extensive research on investment-like projects (DYOR).