In the aftermath of the FTX fallout, with many experienced and inexperienced crypto investors and traders alike losing several millions of dollars to the centralised exchange FTX, one has to go back to basics on self sovereignty of crypto assets.
The importance of self ownership and management of one’s own crypto assets in an unregulated market where centralised exchanges can ‘hold’ their customer’s crypto with zero transparency on how assets are managed cannot be emphasised enough. In June 2022, FTX were printing significant sums of FTT to hide the insolvency evident on their balance sheets. When rumours of the insolvency started to spread, they drained balances and stopped customer withdrawals with the company declaring bankruptcy a few days later. The FTX fallout also had implications on other FTX related entities such as BlockFi and Genesis.
The year 2022 also saw several centralised exchanges suffering from security breaches and hacks with significant loss of customer funds. Bitmart and Ascendex alone lost $273 Million of customer funds from their exchange wallets. Coinbase saw 6000 of its customer wallets exposed to hackers who bypassed the customer account 2FA through the platform’s account recovery process.
The Solana ecosystem suffered a great blow when a Slope hot wallet software security flaw exposed around 10,000 wallet users to hackers resulting in around $8 Million in losses.
Only by moving the crypto assets offline to a hardware wallet such as a Ledger can one have self custody (ownership and management) of one’s crypto. As the old saying goes, “not your keys, not your crypto” and crypto investors new and experienced alike are now being more cautious about leaving their crypto on centralised exchanges or hot wallets.