FTX bankruptcy took over the headlines adding to the crypto turmoil since the beginning of the year. The exchange’s announcement that it was filing for bankruptcy came after days of corporate drama and has shaken crypto markets, fueling suspicious fears to the aching industry that is now struggling with serious credibility issues and intensifying governmental investigations.
One of the main challenges in the world of crypto is keeping your funds safe. Crypto exchanges, which act as intermediaries between buyers and sellers, are a common target for hackers and fraudulent activities. In fact, there have been several high-profile cases of exchanges going bankrupt or being hacked, resulting in millions of dollars worth of lost funds for customers during the past few years.
FTX bankruptcy, formerly one of the largest crypto exchanges, is the most recent example for this. Following users’ accusations of fraud and market manipulation, FTX filed for bankruptcy and maybe having more than one million creditors, according to a recent bankruptcy filing. It came one week after FTX stated that creditors are expected to be over 100,000. This reflects the huge impact of its collapse on crypto traders.
The popular crypto exchange was known for its innovative products and robust security measures, but these were ultimately not enough to save the crypto exchange from collapse.
In the world of crypto, nothing is certain except for volatility and high risks as exchanges are always vulnerable to collapse. It’s only a matter of time until another exchange collapses, eroding millions and maybe billions of dollars of customer funds.
In this blog post, we will explore what happens to your coins if a crypto exchange goes bankrupt and how to protect yourself and keep your funds safe while investing with a crypto exchange.
What caused FTX bankruptcy?
The crypto exchange filed for Chapter 11 bankruptcy protection following a liquidity crisis that plunged its valuation from $32 billion to zero. The exchange is now short billions of dollars after stating that funds had disappeared due to unauthorized access, causing millions of dollars to vanish according to analysts. Nearly a week ago, FTX’s CEO and founder resigned adding more turmoil to the firm’s crisis.
Concerns about insufficient capital caused customer to flee away, and the exchange were in a critical position that forced owners to agree on selling to another rival, Binance, but the deal fell through.
“At some point, I might have more to say about a particular sparring partner, so to speak. But you know, glass houses. So for now, all I’ll say is: Well played; you won.”CEO Sam Bankman-Fried on Twitter – Nov. 10 2022
According to bankruptcy filing, FTX’s assets valuation ranged between $10 to $50 billion with over 130 affiliated companies listed. All filed the bankruptcy along with CEO Sam Bankman-Fried and his investing firm – Alameda Research. The firm acted as a liquidity provider on FTX.
The new CEO tried to reassure markets stating ““The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority, and other stakeholder(s) that we are going to conduct this effort with diligence, thoroughness, and transparency,”.
What happens to your cryptos if an exchange goes bankrupt?
The first thing to understand is that most exchanges keep their funds in a “cold wallet,” which is essentially a secure offline storage that is not connected to the internet. This ensures that your funds are protected from external threats like hacking and malware.
However, even with a cold wallet, there is always some risk involved. If an exchange goes bust or gets hacked, it may be impossible for customers to retrieve their funds. This can leave them vulnerable to theft and manipulation by outside actors.
If you want to protect yourself from such a disaster, it’s important to do your research before choosing an exchange and only keeping a small portion of your crypto holdings on that platform. Additionally, be sure to set up 2-factor authentication for added security and regularly monitor the activity on your account. By taking these steps, you can help keep your crypto safe and secure in the event of an exchange collapse.
How do the crypto exchange providers work? Crypto exchange providers are platforms that allow users to buy and sell cryptocurrencies, such as Bitcoin or Ethereum. They act as intermediaries between buyers and sellers, facilitating the purchase and sale of digital currencies at a set price.
What happens to crypto if an exchange goes bankrupt?
In case of bankruptcy or hacking, retrieving customers funds can be impossible. To stay ahead of these threats, it’s important for crypto holders to be vigilant about their investments and seek out reliable platforms with robust security measures. By following these best practices, you can help protect yourself against future crypto disasters like the FTX one and ensure the safety of your crypto going forward.
After FTX bankruptcy, what’s next?
Many experts predict that the crypto exchange market will continue to see failures and collapses in the years to come. As more and more users flock to this exciting new space, it’s inevitable that bad actors will take advantage of unsuspecting customers.
Is it possible that Crypto.com is next to go under?
There is no way to know for sure whether Crypto.com will go under in the future, as this depends on a variety of factors that are outside of anyone’s control. However, given the recent collapse of other crypto exchanges like FTX and the risks associated with centralized platforms, many experts believe that Crypto.com could be at risk of failure in the years to come.
To protect yourself from this potential disaster, investors should be proactive about protecting their funds and taking their assets to cold wallets to minimize the risk of losing them in a potential exchange failure. With vigilance and smart investing, crypto holders can continue to navigate this rapidly changing landscape with confidence.
Bitcoin vs Crypto Exchanges
The difference between Bitcoin’s blockchain and a centralized cryptocurrency exchange like FTX is that Bitcoin blockchain is completely decentralized and distributed across a vast network of independently operated nodes, whereas centralized cryptocurrency exchanges like FTX hold all customer funds in a centralized manner and are therefore vulnerable to hacking and other forms of exploitation.
Ultimately, whether you choose to invest in Bitcoin or cryptocurrencies on a centralized exchange like FTX will depend on your individual preferences and risk tolerance. Some traders may find that the advantages of having their funds held in a central location outweigh the potential risks of hacking and other forms of fraud, while others may prefer to place their trust in the secure and transparent nature of decentralized blockchain technology. Eventually, it is up to each individual user to decide which approach works best for them.
Cold wallet vs. hot wallet
Crypto exchanges also differ in terms of hot and cold wallets. A hot wallet refers to a crypto exchange platform that allows users to store their digital assets online through virtual digital wallets, while a cold wallet is stored offline on an external device or hardware, such as a USB drive or paper wallet.
Some traders may prefer the convenience and accessibility of a hot wallet, while others may be more comfortable storing their cryptocurrency holdings in cold storage for added security. Given the risks associated with centralized platforms, many traders have begun opting for cold wallets to minimize the potential impact of cyber-attacks and other threats.
How to Secure Your Funds with Crypto Exchanges?
Keeping your digital assets offline can help mitigating the risks which entitles with keeping crypto on an exchange. Cold crypto storage may keep your assets less liquid and maybe harder to trade quickly. However, due to the multiple protective steps to access your funds, it is considered way safer. Since these digital wallets are offline, they are more immune to hacking activities.
- Two-Factor Authentication: turning on two-factor authentication for your crypto withdrawals can keep your crypto safe in case your account got hacked by sending a code to your phone every time you make a withdrawal. Otherwise, you’re totally depending on how secure your email address and password to protect your cryptos. Using an authenticator app is an another method through which you can make it harder for any hacker to withraw your crypto.
- Use a Strong Password: another security tip is to use a very strong password that makes it harder for an attacker to get into your account. The more complex your password is, the harder it is to get cracked. It is advised to use a different password for your wallet from that you use for your account on the crypto exchange. Write down you password so you don’t worry about forgetting it. However, in case of forgetting your password, you can use your seed words to recover your wallet.
- Keep Your Seed Words Safely: seed words, AKA master key , in the crypto world is more like a code consists of a series of words that can be used to get access to all your account keys. Backing up your seed words properly will prevent losing access to your cryptos in case your device is lost or broke down. Try to keep your seed words safely on a paper or an external offline storage.
Frankly, there’s no security method that has been proved 100 percent effective. You may choose whether to follow such security methods if they’re too inconvenient for you.
The future of crypto investing is uncertain, but with careful planning and risk management, it is possible to protect your assets in this volatile space. Whether you choose to invest on Crypto.com or another exchange platform, staying informed about the latest trends and developments will help you make smart decisions that support your long-term goals. Ultimately, the key to navigating this dynamic landscape is to stay flexible and be prepared for anything.