Recent events in the crypto world highlighted one of the most important aspects when entering this market segment: safety.
Since we are dealing with technology, it is comprehensible that some of the knowledge of crypto safety can go deeper than the understanding of the general public.
However, it is our mission to make this knowledge the most accessible for anyone who wishes to enter this universe. After all, we are dealing with people’s assets and, consequently, their dreams and hopes – and we absolutely do not take it for granted.
The FTX case
Recently, one of the most famous crypto exchanges collapsed in bankruptcy, leaving numerous users at sea.
FTX had its own cryptocurrency named FTT and its case reminds us of another one that happened this year: the TERRA/LUNA case.
While doing some digging about the composition of Alameda’s sheet balance, a “sister company” to FTX and also founded by Sam Bankman-Fried (FTX’s CEO), CoinDesk revealed that Alameda was in fact holding billions of dollars in FTT, the FTX’s utility token, as collateral for USD loans on FTX.
At this point, concerns were raised as CoinDesk’s search could point to a risky form of operations in Alameda’s net equity.
After that, Binance’s very own Changpeng Zhao (CEO), entered the situation and claimed that those recent discoveries led to a potential liquidation of all FTT left in Binance’s books.
Of course, Binance being the huge exchange that it is worldwide, caused deep concerns to users that started to sell their FTTs even faster.
As for the end of this, you can already imagine: FTX went bankrupt and a lot of users’ assets were not valuable anymore.
The Exchange factor
Anyone who has been in the crypto world for a while must have listened to the ‘your keys, your crypto’ statement.
The famous phrase endorses the idea that non-custodial crypto wallets are the best answer when the question is ‘how to avoid situations such as FTX and LUNA?’.
However, while keeping your assets in a non-custodial wallet and using the exchange for trading funds is still the best answer, it is not the only one.
Tips to keep your funds safe
Regardless of which platform you are using to hold your crypto assets, some tips can be useful to minimize risks no matter the company you are relying on:
1. Use Two-Factor Authentication
We can start with an old but gold one.
The Two-Factor Authentication aligned with a strong password can be the starting point for any security measure.
Tools such as Google Authenticator are also handy and can provide you with maximum security for your account and all your assets.
2. Backup your Private Keys
Never too much to remember: keep your private keys safe, people.
By storing your SEED phrase safely and (preferably) offline, you minimize the risks of crypto hacking in your wallet account as well as keep yourself safe from one of the most dangerous things that can happen: forgetting your SEED words.
So, no matter the platform, always keep that in mind.
But in case you are Klever, you can learn how to back up your keys in the Klever Wallet app here:
|EXTRA COOL TIP|
A cool tip that some crypto users utilize is to “transform” a spare mobile device into a hardware wallet.
But how so?
Simple: if you have another spare mobile phone, you can use it to create a Klever wallet account inside of it. Then, you’ll have two accounts – one in your regular active mobile phone and other in the spare phone.
So, when you need to make any kind of transaction you will use the account in the active phone and then transfer the assets to the address that is in your spare phone.
But remember: the spare phone has to be offline all the time – that way, you’ll have an account that is constantly ‘off-the-grid’.
And in case you need to update it to check your balance, you can turn your internet on for a few seconds and then turn it off when the refresh is done.
Consequently, the spare phone will be used as a kind of hardware wallet which, by being offline, will give extra security and hackers won’t be able to invade it.
3. Multisig wallet
Have you heard of Multisig wallets? Well, this is a good one to improve your security when holding crypto.
As previously mentioned in our post, “What benefits does Multisig bring to Klever Blockchain?”, a MultiSig wallet is a digital wallet deployed by an organization or a group of individuals that operates with multi-signature addresses.
This invariably means that it requires more than a single private key to sign and authorize a crypto transaction or, in some cases, that several different keys can be used to generate a signature to affect a successful transaction.
Yes, it can be used for company or group purposes but what many people still don’t know is that it can be used by one single person to increase the security of the wallet.
Once you use a Multisig wallet, you can store different private keys in different online and offline devices such as your notebook, your phone and a piece of paper.
This means that to complete a transaction, you’ll have to “unlock” the operation with at least two of the three private keys that you have on these different devices.
Also, Multisig wallets do not have a hierarchy, which means that no specific signature is needed to finalize the transaction. Any of them can sign the transaction in any order and transactions do not expire, remaining in the system as pending transaction proposals.
Consequently, you won’t be relying on only one private key since you have two more options to complete your transaction. This can help a lot with the ‘forgetting’ issue and reinforces the security, since you’ll have to authorize the operation twice. Got it?
Of course, the process can get a little more complicated than a single-key wallet, but hey. It’s the “price” you pay for a stronger and safer process.
3.1 KleverChain Multisig
Users and project creators can increase their level of security by having multiple people or groups signing the transactions, making Multisig a powerful feature on KleverChain.
A Multisig address in Klever can be created with Klever Kustody, the system inside the KleverChain for multiple users.
With Kustody, users can create roles for their addresses to delegate responsibility and roles: signature of transaction and specify the actions of what that address can execute on the blockchain.
For instance, creators can delegate a threshold of 3-4 addresses to sign transactions, and each address has a weight (own address has a weight of 4, and others have 1 each, meaning that creator address can sign transactions). Creators can delegate up to 10 addresses using the Multisig Kapp.
4. Learn how to trade safely
Most of the tips we have given so far are extremely important for wallets, but what about exchanges?
They already have a 2FA in their system automatically but of course you can make the entire process of trading even safer for you.
In trading, there are some modes that can help you with the problems that cause turmoil in the crypto market, such as speculations and variables.
When you use the Stop-Limit order and the Stop-loss order you have more control over possible drastic changes in the crypto market.
The Stop-loss order is automated, and you can use it to set a specific price level and the order will automatically close when it touches that level. It’ll help you in cases such as a dramatic asset drop in the market, preventing a bigger loss for you.
As for Stop-limit order, it is a mix of a stop order and a limit order, where you will set two prices – one that you wish to trigger the order and the other which the order will be executed, giving you even more control over the trade.
These knowledge tools can be decisive when you start trading.
5. Proof of Reserves (PoR)
Another interesting aspect for Exchanges that not many people know about is the Proof of Reserves (PoR) system which is an important ally for an Exchange’s transparency.
A PoR is basically an audit system made by an independent third-party in an exchange’s reserves.
It works with a privacy-focused mathematical data structure known as the Merkle tree, where users can verify specific transactions without having to download the entire blockchain.
According to the Investopedia blog, “third-party auditors access cryptographic signatures representing the total balance of customer assets and ensure that the custodian of these assets has an equal (or greater) amount of reserve assets in place to cover all potential customer withdrawals”.
This would ultimately help prevent a liquidity crisis as the transparency of the blockchain would show if a sudden massive withdrawal movement was being made.
Many could say that a PoR could stop a situation as FTX from happening but other aspects are being considered such as the fact that Proof of Reserves audit only shows a single snapshot in time of the blockchain tree, not a live accounting of balances over time.
Also, a company could have off-chain liabilities or collude with the auditing team.
However, by now, PoR is showing its potential to be the bare minimum when it comes to disclosure standards.
Klever is currently working to improve our current view of Proof of Reserves insights on Klever Exchange.
Keep informed, keep safe
Last, but definitely not least, it is extremely important to keep up with education materials and with companies’ news.
To be alert inside a market where everything can change in a blink of an eye seems to be decisive to avoid personal catastrophes. Read guides, tips, watch videos, take courses, whatever you can do in order to be filled in as much as possible.
The price for being well-educated is not that high at the end of the day compared to what you might have learned. Knowledge – pretty much as good investments – stay with you for a long time and can help you multiply your assets.