By Gaurav Arora
In 2022 the crypto industry experienced instability and significant events, such as the collapse of an algorithmic stablecoin, a protocol, and one of the largest exchanges. The collapse of FTX, once a $32 billion crypto exchange shattered investor confidence in cryptocurrencies. As the largest collapse in the short history of cryptocurrencies, FTX further deterred investors who already are cautious because of concerns about stability and security. The confidence in centralized exchanges took a backseat yet again on when Crypto.com accidentally sent 320,000 ETH to Gate.io.
With many potential customers now sceptical, crypto platforms will likely witness low trading volumes for a while. Though Investor confidence in centralized exchanges took a backseat, there needs to be a concrete approach set in place to enable trust put into exchanges.
A possible approach for the future is that the jurisdiction with the largest consumer exposure can establish an end-to-end regulatory oversight as a pre-condition to permitting access to the market.
The failures were a part of the centralized exchanges (CEXs) and centralized financed platforms (CeFi). These business models have existed for centuries except that they now offer crypto asset exposure, but the users are still at the receiving end — as the root ownership lies with the centralized companies who hold the key to those assets.
How does a self-custody wallet help?
A self-custody wallet gives users complete control of their digital assets. This means that the private keys to their wallet (that provide ownership of the digital assets) are stored directly on their mobile device or the web browser. These keys are not stored on any centralized exchange such as the FTX that can seize your assets overnight.
The recent FTX incident highlighted the importance of secure storage of digital assets and the need for a more robust infrastructure. Users need to understand the importance of self-custody and storing digital assets in a secure wallet.
Self-custody wallets such as Okto protect you from counterparty risk as the keys to your wallet are distributed across nodes and the users remain in control of their funds at all times.
Security
Self-custody wallets protect you from counterparty risk as the keys to your wallet are distributed across nodes. So even if you lose your keys, there is no single point of failure, providing multiple layers of security to your funds. Self-custody not only provides users with ownership rights but also protects powerful actors from corrupting the network and its participants.
Bankruptcy risks
No one can access your funds at any given time apart from you, providing complete ownership of funds. Hence, self-custody wallets are more relevant than ever before as we witness major centralized exchanges such as FTX putting user funds at bankruptcy risks.
No record of reserves
Self-custody wallets run on decentralization and DeFi is an integral part of the infrastructure. It provides transparency at all times as the proof of reserves can be verified and is censorship resistant.
The author is SVP, CoinDCX
