How best to protect your cryptocurrencies

Some French people who have posted their cryptocurrencies on the platforms find that they cannot get their money back. How best to protect your cryptocurrencies?

Celsius, Finblox, Babel Finance… After the collapse of cryptocurrencies, more and more companies made radical decisions about the cryptocurrencies of their users. A principle that contradicts the philosophy of the industry.

Last Monday, the Celsius lending platform announced to its 1.7 million users that they could no longer withdraw or transfer their cryptocurrencies. The situation is far from resolved, the company explained on Monday that it needs “more time” to resolve the situation. For its part, Finblox has also taken a number of restrictive measures against its users. On Friday, the Babel Finance platform also announced that it is suspending the withdrawal and redemption of cryptocurrencies on its platform in the context of tensions in the cryptocurrency market.

The consequences are the same: users who bet on his company are now unable to act or get their money back, and are not sure they will be able to get it back.

To date, there are not many ways to store (or protect) your cryptocurrencies: you have to either go through centralized platforms, or protect your cryptocurrencies yourself (in a physical wallet).

Keep on the platform: easy access, but more risk

The first option is to do the same as with a traditional financial intermediary, ie to trust a platform that will take care of the management of its cryptocurrencies. This ranges from large cryptocurrency exchange platforms known as CEX (for “centralized exchange”), such as Binance, Coinbase, FTX or Kraken, to decentralized financing platforms (DeFi), such as Celsius, BlockFi, Finblox …

“This is the method closest to the habits you can have with your regular banking partner: you log in to your online account with a password and manage your funds through this trusted third party,” explains Alexander Stachchenko, co-founder of BFM Crypto. blockchain partner and blockchain and cryptocurrency director KPMG.

The advantage of CEX remains primarily in the ease of both access and use for services such as buying and selling.

“However, the price you have to pay depends on this trusted third party: as in traditional finance, if that trusted third party goes bankrupt or decides to suspend access to your money, it can. But unlike traditional finance, this world is less controlled , and the possibilities of resorting to these sometimes arbitrary methods are limited, so this is a risk that we must be aware of, “said Oleksandr Stachchenko.

Indeed, not all platforms are created the same.

“If you decide to trust a centralized player for your long-term savings or profits, you should be very careful about the reliability of that player. Most of them are young, poorly capitalized, and their strategies “Investment companies are completely non-transparent.”

French appeals remain limited

In fact, for the French, remedies to recover their money in the event that certain companies announce a freeze are limited.

“These platforms rarely have a headquarters or office in France. It is more a matter of trust than a question of legal capacity to withdraw: freezing withdrawals from any large platform would be tantamount to recognizing insolvency, which would be catastrophic. for her, ”explains BFM Crypto Victor Sharpiat, a former crypto-lawyer who launched fintech in the sector.

Similarly, all companies have taken care of protection against user claims, as explained in the article Figaro. In this way, Celsius “protected itself from the obligation to reimburse its customers in the event of bankruptcy or lack of liquidity”. Similarly, large platforms such as Coinbase and Binance “emphasize the risks associated with investing in cryptocurrencies and protect themselves from any recourse in the event of a technical failure in their services, burglary, a sudden drop in the prices of the assets they place. , or insolvency “, – reports Le Figaro.

However, can we expect the same scenario as Celsius for large centralized trading platforms? Despite some alarming signals from Coinbase (with its numerous layoffs), it is unlikely that they will occur in a situation similar to Celsius or Finblox.

“It seems very unlikely to me, because any withdrawal freeze will be interpreted as the beginning of insolvency, which will cause panic among all customers. Certain products. On the other hand, traders and institutions have a vital need to use these platforms, because there is liquidity.” , – Victor Sharpyat considers.

Hardware wallets are the best solution, but the complexity of the model

Another method of protecting or storing your cryptocurrencies is very different from centralized platforms. Thus, the user can choose to store their cryptocurrencies in the so-called “cold wallet”.

“It’s about protecting your own cryptocurrencies, in short, being your own bank. Specifically, this means that you will have access only to your cryptocurrencies, Alexander Stachchenko continues.

Thus, the current context of distrust of certain platforms seems to benefit players who offer services such as the French unicorn Ledger or even Trezor. With this type of method, the user’s private key remains in the hardware wallet (physical USB key) without being visible on the network.

A member of Ledger confirmed to BFM Crypto that the sales curve for so-called “nano” wallets rose sharply a few days ago. So far, Ledger has sold more than 5 million nano-wallets.

The advantage of this type of method remains independence and indisputability.

“No one can take control of your money. But the price you pay is just increased responsibility: you are responsible for the safety of your money, and there is no second chance. If your key, if you lose it, etc., your money is lost forever. And no one will be able to return them to you, “the latter said.

However, owners of nano-wallets can face many phishing scams that also require great vigilance. “Scammers will ask you to download a fake Ledger Live program that initiates a transaction on your Nano. You must categorically refuse this transaction, “the company warns.

Diversify and be well informed

Therefore, each of the options for storing or protecting your cryptocurrencies has advantages and disadvantages.

“Thus, it is best, as a rule, to diversify often and be well informed. The money we need every day or for which we want to do business on a regular basis can be kept for a third – the Party Platform for convenience. If we have a slightly larger legacy in cryptocurrency, we need to think about keeping this money on our own and implementing good security methods, ”Oleksandr Stachchenko emphasizes.

However, in the current situation with Celsius, users are faced with a third party, which unilaterally decided to block their funds in order to maintain their own solvency. “To avoid such situations, it is best to diversify your crypto repositories (platforms and equipment),” he adds.