How to Prevent Your Cryptocurrency Assets from Platform Failure

When a cryptocurrency giant like FTX goes under, it might generate repercussions that will be experienced for some time and shake the entire system. The issue is that there are numerous cryptocurrency platforms with various financial connections. A domino effect may occur if one fails. Many investors are currently left wondering what they should do to safeguard themselves as a result of this.

Here are three directions given by Mark Tencaten you can follow.

1.      Use a non-custodial wallet.

The codes that let you handle your cryptography are known as crypto keys. You are utilizing a custodial wallet when you keep your cryptocurrency on the platform from where you purchased it. The exchange is in charge of your cryptographic keys. The exchange might freeze your account and prevent you from retrieving your assets if something happens. That could be due to a number of factors, such as a system hack, liquidity problems, or security concerns regarding user behavior.

Mark Tencaten explains; however, you regain control if you transfer your money to a non-custodial wallet. You hold the keys; thus, if the platform fails, your money won't be included in any bankruptcy procedures. It is one of the finest safeguards against platform failure because of this.

The two primary forms are cold wallets, which are often maintained offline, and hot wallets, which are online. Although less user-friendly, cold wallets are more secure.

Compared to cryptocurrency exchanges, crypto wallets have the following disadvantages:

·        They require some technical knowledge and are not as user-friendly as they should be.

·        You risk being completely cut off from your cryptocurrency if you forget your wallet's security phrase and password.

·        Your crypto's security is solely your responsibility. Your crypto assets may be in danger if your laptop is compromised with malware or a virus.

A trust issue is one of the problems with what is coming out of FTX. Because the cryptocurrency market is still mostly unregulated, we are often unaware of what centralized platforms are doing with our funds. However, the decentralized nature of cryptocurrencies is one of their appeals. Anyone can be their own financial institution without relying on any centralized entities or middlemen.

2.      Maintain complete records.

Many users' access to their transactions records and activity reports was also lost when the FTX website went down. Do not rely on a cryptocurrency exchange to keep that data for you. Make a note on your calendar to sign in every month and save your most recent activity or routinely maintain records of every transaction.

Mark Tencaten says that this can be due to two factors. First, you must disclose your cryptocurrency transactions on your tax return in several nations. You'll need your own records if there's even a remote possibility that your cryptocurrency exchange won't be operating on tax day, so you can finish that filing.

The second reason is that you might need proof of your assets in order to stand a chance of recovering at least some of the money if the worst occurs and your exchange collapses. There is currently no sign of the FTX website being backed up, which may worsen some of its customers' problems.

3.      Don't believe everything they say.

The image that is developing of FTX is unsettling. An initial court petition from the new CEO revealed various issues, including lost funds, major mismanagement, and internal network flaws.

Nevertheless, it would be incorrect to presume that all cryptocurrency exchanges are scams. Due to the lack of oversight in this industry, it might be difficult for regular investors to identify any questionable transactions. When evaluating crypto platforms, keep an eye out for the following indicators:

·        Asset audits by other parties.

·        Insurance against crime for third parties.

·        FDIC coverage for deposits in dollars.

·        Leverage used by platforms.

Following some significant bank failures during the Great Depression, FDIC insurance was developed to provide consumers with security against bank failure. It excludes assets related to cryptocurrencies. However, some platforms store consumers' deposits made in US dollars in FDIC-insured bank accounts, which at least keeps those funds safe.

A number of well-known cryptocurrency exchanges have disclosed or have promised to produce audited proofs of deposits, which helps to demonstrate that their balance sheets are accurate and that customer funds are fully backed.

Conclusion

According to Mark Tencaten, a crucial component of cryptocurrency investment is learning how to preserve digital assets. We frequently discuss volatility and the potential for single coins to experience sharp drops in value. Still, the failure of a particular cryptocurrency platform might be just as harmful, if not more so. Always remember to invest only money you can bear to lose in cryptocurrencies. This will prevent financial loss if the platform does fail.