Cryptocurrency markets are volatile, sentiment-driven, and a high-risk investing pool. Crypto exchanges losing their market value to peanuts and investors’ money being wiped out to zero in the blink of an eye is a terrifying prospect, but one that is to be expected when investing in volatile assets known as cryptos. There are numerous examples of how your crypto wallet can be depleted overnight, with the LUNA delisting being the most recent.
Cybercrime, phishing, impersonation, Ponzi schemes, frauds, scams, market repercussions, and legal constraints are just a few of the risks in the cryptocurrency market. All of these things can lead to a crypto exchange becoming poorer by the night. But what happens to your crypto assets if the crypto exchange fails? To put it simply, your crypto money will likewise go bankrupt. However, as long as there is no regulatory support and extensive safety standards within crypto exchanges, your investment in cryptocurrency will remain at danger.
Any failure by the crypto platform or their partners to maintain the necessary controls or to manage customer crypto assets and funds appropriately and in accordance with applicable regulatory requirements could result in reputational harm, litigation, regulatory enforcement actions, significant financial losses, customers discontinuing or reducing their use of the products, significant penalties and fines, and additional restrictions, all of which could negatively impact the crypto platform.
If a cryptocurrency exchange goes bankrupt, your crypto assets are likely to follow.
However, even if a crypto exchange goes bankrupt, there are ways to secure your crypto holdings. A non-Custodial crypto wallet is the best solution.
Non-custodial wallets, as opposed to custodial crypto assets, which are kept by third parties and only allow investors to send and receive money, are services that place the command of managing crypto assets in the hands of individuals.
For example, they are protected by a centralised bank, in India’s case the RBI, just like a bank deposit account. However, because crypto platforms do not have regulatory backups, investors’ accounts on them are always at market risk.
The user manages his or her crypto assets in a non-custodial crypto wallet. They are less dangerous, and the information is retained by the clients. Custodial wallets have high security standards and are vulnerable to hacks. While non-custodial assets are offline, hardware wallets in the form of physical media decrease the possibility of data leakage and theft, among other things, until and unless the user discloses his or her details with someone else.
Non-custodial wallets, which take the form of a USB stick, are also known as cold wallets.
Another medium is blockchain-based apps, Decentralized crypto exchanges (DEXs), which offer lower costs and allow clients to directly keep their own crypto assets while eliminating regulatory or insolvency burden.
The DEX facilitates large-scale crypto asset trading among multiple users. Instead of the traditional strategy of acting as a financial intermediary between buyers and sellers, they do it purely using automated algorithms. The concept behind a DEX is “disintermediation,” or the removal of middlemen to allow average people to do business directly with one another. A DEX does not provide users with custody of their crypto assets. Instead, users keep all of their assets in their wallets at all times.
