How to Keep Your Crypto Safe

Opinion Piece, written by XEROF COO Marc Taverner

Following the demise of cryptocurrency exchange FTX last year and the recent failures of Silicon Valley Bank, Silvergate Bank, and Signature Bank last week, these events have rekindled public discussion about what steps crypto holders should take in order to keep their crypto safe.

For example, many cryptocurrency owners need to be more cautious when it comes to depositing their funds on a crypto exchange. Here we explain why this is not a safe way to store crypto and discuss what other solutions are available.

Why You Should Not Leave Crypto on an Exchange

If you are new to crypto investing, keeping your coins on an exchange might seem the most practical choice. Many crypto holders assume they do not have to worry about anything, as the coins they buy will be automatically added to the wallet created by the exchange and that the funds will be held there safely.

However, that is not entirely accurate, while the wallets created by exchanges offer some protection, they are not completely foolproof. In recent years, hackers have stolen millions of dollars from wallets provided by exchanges.

One example is the 2011 attack on Mt. Gox, in which 850,000 Bitcoins were stolen from the exchange, or the 2018 Coincheck theft, in which $530 million worth of NEM tokens were stolen. These two hacks are among the largest in cryptocurrency history.

1. No control over private keys

Crypto exchanges essentially act as custodial wallets. If a person chooses to store cryptocurrency on a centralised exchange, the exchange protects the user's private keys.

The phrase "not your keys, not your coins" is frequently used in cryptocurrency forums on Reddit and other social media platforms. The meaning behind the saying is that unless your cryptocurrency is kept in a digital wallet where you have full control over your own private keys, you do not have complete ownership of the funds.

When choosing to deposit cryptocurrencies with an exchange, platform users rely on systems they have no control over. As a result, if someone has a large amount of crypto on an exchange, they run the risk of permanently losing their funds during a malicious attack.

Furthermore, while banks are legally required to protect their customers' money, this is not the case with cryptocurrencies. Since cryptocurrency exchanges are not yet covered by the Federal Deposit Insurance Corporation (FDIC), cryptocurrency holders may have trouble recovering their tokens if an exchange misplaces or loses its assets.

2. Any exchange wallet may be frozen at any time

Exchanges have been reported to freeze or block user wallets on some occasions. This can be frustrating for investors because it often happens without much notice. For example, when an exchange detects suspicious activity on a particular user's account, it freezes the account.

Exchanges have set up systems to identify cryptocurrency associated with illegal activity in an effort to curb crypto crime.

An exchange may also freeze a user's wallet for other reasons, such as:

  • A hacking attack is in progress.
  • The user has violated the terms and conditions of the exchange.
  • A court-ordered injunction has demanded the exchange to freeze activity.

As a result, if you use a crypto exchange, you should be aware that it's always possible for your account to be closed or frozen with little notice.

3. Transaction fees

Some wallets created by exchanges charge fees for transactions also. Even though these fees are small—they seldom exceed 0.2%—they can add up over time, particularly for users who make transactions regularly.

What is the Alternative?

Exchange wallets are often referred to as custodial wallets. This is because the cryptocurrency inside the wallet is held in custody by a third-party custodian. Therefore, it makes sense for investors to use a non-custodial wallet instead of holding their cryptocurrency on an exchange.

High-net-worth cryptocurrency investors can add another layer of security to their holdings by choosing to use professionally managed accounts. Xerof offers this particular service. Xerof specialises in working with high-net-worth investors by utilising offline custody tools for clients' assets, such as segregated wallets when managing crypto investments.

How Else Does XEROF Protect Client's Funds?

XEROF operates more like a broker than an exchange, as we offer on-ramp and off-ramp services. We never hold client funds; instead, all client funds are held in segregated wallets. This means that our clients always have full control over their funds, which are completely separate from XEROF's balance sheet.

Clients can easily send and receive cryptocurrencies and will experience zero banking friction for all transactions when moving funds through XEROF's innovative cryptocurrency gateway.

For XEROF, protecting clients' funds has always been absolutely paramount, and we will continue to do so regardless of the market conditions, now or in the future.

If you want to learn more about what XEROF can offer you, please do not hesitate to contact us. Of course, you can also reach out to us via Telegram, Twitter, Facebook, or LinkedIn.

@ All rights reserved. FE Swiss Financial AG trading as Xerof &  is a registered Virtual Asset Service Provider (VASP) supervised by the self-regulatory organisation (SRO) VQF for AML compliance. FE Swiss Financial AG is fully compliant with Swiss regulation in the field of AML/CFT from Swiss Financial Market Supervisory Authority FINMA. VQF SRO Membership Nr. 100954.All FE Swiss Financial AG dba XEROF services shall be governed by its General Terms and Conditions of Service, including, inter alia, a limitation of liability and a nomination of competent jurisdiction. These General Terms and Conditions may be consulted via our Website. FE Swiss Financial AG does not provide financial advice and nothing in our communications should be construed as financial advice.


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