Cryptocurrency storage is one of the most important things that investors should consider when joining the burgeoning digital asset market. Most people investing in this space have little to no knowledge of the existing options. Crypto exchanges currently hold the larger share of investors’ capital despite the associated risks, including hacking and regulatory pressures from oversight authorities.
There are two types of crypto wallets; custodial and non-custodial. The former is offered by centralized crypto service providers while the latter requires no third party intervention. Non-custodial wallets give crypto users access to their private keys, meaning that an investor is fully in control of their funds at any point in time.
What is the danger of storing crypto funds in a custodial wallet? This type of crypto storage retains a user’s private keys hence limiting them from accessing their funds without the permission of the service provider. In the past, there have been several cases where crypto investors funds or value as a result of crypto exchanges being hacked or directives from authorities to freeze funds.
Some of the recent incidents include the Mt.Gox hack in 2014 where 850,000 Bitcoins were siphoned from the exchange (roughly worth $460 million in 2014). Regulation authorities have previously seized crypto assets through the help of centralized exchanges. Additionally, it has become quite easy for regulators to direct the freezing of crypto funds due new compliance laws such as the 5AMLD and MiCA.
Similar to most tech innovations, the crypto ecosystem has evolved to feature a wide range of products; users now have the option of storing their assets with exchanges or non-custodial wallets. While centralized crypto custody still enjoys a comfortable lead, non-custodial wallets have begun going mainstream given their value proposition when it comes to the principle of decentralization.
Investors have several options that crypto users can leverage, which include hardware wallets such as Trezor and Ledger. These off-chain crypto storage solutions are designed as a hard disk (cold storage) that can only be accessed through a private key held by the owner. This means that no government institution can gain access to one’s crypto funds; however, they can be hacked should a malicious player obtain the login credentials.
The other alternative is a software wallet like Metamask; according to the latest update by Consenysys, this wallet hosts over 10 million monthly active users (MAUs). This relates to a large share of the crypto market, given that Decentralized Finance (DeFi) innovations on Ethereum recent increase in market share. Metamask’s current infrastructure is advanced for the new entrants in the crypto market.
There are some Metamask alternatives such as the Ambire wallet which offers a simpler user interface. This non-custodial wallet features an email registration option, eliminating the need for crypto investors to manage complex seed phrases. Ambire has launched a web application that new investors can easily navigate compared to the browser extension offered by Metamask.
Crypto investors are not limited to the services offered by centralized exchanges. It is much easier to navigate the DeFi ecosystem through non-custodial wallets like Metamask and Ambire.
The value of any asset is largely dependent on the ability to liquidate without much trouble; that being the case, crypto investors ought to be very careful about where they store their assets. As much as crypto exchanges are easily accessible, the underlying risks cannot be ignored. It is much better to store one’s funds in a decentralized platform where they have full control instead of relying on centralized intermediaries that have proven to be easily compromised by hackers and regulatory measures.
Investors beware: Crypto assets have lost nearly $800 billion in market value in the past 30 days per a recent report posted on pymnts.com.
Red Sky Alliance is a Cyber Threat Analysis and Intelligence Service organization. For questions, comments or assistance, please contact the office directly at 1-844-492-7225, or feedback@wapacklabs.com
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