How to best protect your cryptocurrencies

Some French, who had placed their cryptocurrencies on platforms, find themselves unable to recover their funds. How to best protect your cryptocurrencies?

Celsius, Finblox, Babel Finance … Since the collapse of cryptocurrencies, more and more companies have made radical decisions regarding their users’ crypto funds. A principle that goes against the philosophy of the sector.

On Monday, the Celsius lending platform announced to its 1.7 million users that they could no longer withdraw or transfer their crypto funds. The situation is far from resolved, with the company explaining on Monday that it needed “more time” to resolve the situation. For its part, Finblox has also taken a number of restrictive measures for its users. On Friday, the Babel Finance platform also announced the suspension of cryptocurrency withdrawals and redemptions on its platform amid a tense environment in the cryptocurrency market.

The consequences are the same: users who had bet on his companies now find themselves unable to act or recover their funds, and are not sure they will be able to recover them one day.

To date, there aren’t many methods to store (or secure) your cryptocurrencies: you have to either go through centralized platforms, or protect your cryptocurrencies yourself (on a physical wallet).

Store on one platform: Ease of access, but greater risk

The first option is to do as with a traditional financial intermediary, or to rely on a platform that deals with the management of your cryptocurrencies. This ranges from large cryptocurrency exchange platforms known as CEX (for “centralized exchange”) such as Binance, Coinbase, FTX or Kraken to decentralized finance (DeFi) lending platforms such as Celsius, BlockFi, Finblox …

“This is the closest to habits you can have with your usual banking partner: you connect with a password to your online account and manage your funds through this trusted third party,” Alexandre Stachchenko, co- explains to BFM Crypto. founder of Blockchain Partner and director of blockchain and cryptocurrency at KPMG.

The advantage of CEX remains above all the ease, both of access and use of services, such as buying and selling.

“However, the price to pay is an addiction to this trusted third party: as in traditional finance, if this trusted third party fails or decides to suspend access to your money, it can. But unlike traditional finance, this world it is now less supervised, and the possibilities for redressing these sometimes arbitrary methods are limited. It is therefore a risk that we must be aware of “, underlines Alexandre Stachchenko.

In fact, not all platforms are created equal.

“If you choose to rely on a centralized player for your long-term savings, or to generate returns, then you should be extremely vigilant about this player’s solidity. Most are young, under-capitalized and their strategies.” they are completely opaque. If they are able to dangle outsized returns, which can work in a bull market, beware of the current reversal which can expose their weakness and lead to bankruptcies, ”the latter points out.

The appeals of the French remain limited

For the French, in fact, the remedies to recover their funds in the event of freezing announcements by some companies are limited.

“These platforms rarely have a headquarters or an office in France. This is more a question of trust than the legal capacity to make a withdrawal: a blocking of withdrawals by any large platform would be tantamount to admitting insolvency, which it would be disastrous for her, “Victor Charpiat, a former crypto lawyer who launched a fintech in this sector, explains to BFM Crypto.

Likewise, all companies have made sure to protect themselves from user complaints, as explained in an article from the Figaro. The Celsius company thus “protected itself from the obligation to repay its customers in the event of bankruptcy or lack of liquidity”. Likewise, large platforms such as Coinbase and Binance “highlight the risks associated with investing in cryptocurrencies and protect themselves from any recourse in the event of a technical failure of their services, hacking, sudden drop in the price of the assets they host or insolvency,” he reports. Le Figaro.

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

“It seems very unlikely to me because a possible freezing of withdrawals would be interpreted as the beginning of insolvency, which would cause all customers to panic. Some products. On the other hand, merchants and institutions have a vital need to use these. platforms because that’s where the liquidity is, “considers Victor Charpiat.

Hardware wallets, better solution but model complexity

The other method of securing or storing your cryptocurrencies is very different from centralized platforms. A user can then choose to store his cryptocurrencies on a so-called “cold wallet”.

“It is about protecting yourself your cryptocurrencies, in short being your bank. Specifically, this means that you will only have access to your cryptocurrencies,” continues Alexandre Stachchenko.

The current context of mistrust towards some platforms therefore seems to benefit players who offer this type of service, such as the French unicorn Ledger or even Trezor. With this type of method, a user’s private key remains in the hardware wallet (a physical USB key) without being visible on the network.

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

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

“Nobody can take control of your funds. But the price you pay is simply greater responsibility: you are responsible for the safety of your money and there are no second chances. If your key, if you lose it, etc. the money is lost. permanently and no one can give it back to you “, specifies the latter.

However, nano wallet owners can face many phishing scams, which also require great vigilance. “The scammers will ask you to download a fake Ledger Live application, which will trigger a transaction on your Nano. You absolutely must refuse this transaction,” the company warns.

Diversify and be well informed

The options for storing or protecting your cryptocurrencies therefore have advantages and disadvantages.

“The best thing then is generally, as often, to diversify and be well informed. The money we need on a daily basis, or on which we want to carry out regular operations, can be held in a third-party platform for convenience. slightly larger in cryptocurrencies, you need to consider holding this money yourself and putting good security practices in place, ”Alexandre Stachchenko points out.

However, in the current situation with Celsius, users are faced with a third party who has unilaterally decided to freeze their funds to preserve their solvency. “To avoid this type of situation, the best thing is to diversify the storage spaces of cryptocurrencies (platforms and hardware),” he adds.

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