Some French, who had placed their cryptocurrencies on platforms, cannot get their money back. How can you best secure your cryptocurrencies?
Celsius, Finblox, Babel Finance… Since the crypto crash, more and more companies have made radical decisions regarding their users’ crypto funds. A principle that goes against the philosophy of the sector.
Last Monday, the Celsius lending platform announced to its 1.7 million users that they could no longer withdraw or transfer their cryptocurrency. The situation is far from resolved, with the company explaining Monday that it needed “more time” to resolve the situation. For its part, Finblox has also put in place a series of restrictive measures for its users. On Friday, the Babel Finance platform also announced that it is suspending withdrawals and redemptions of cryptocurrencies on its platform, amid tensions in the crypto market.
The consequences are the same: users who had bet on his companies are now unable to take any action or get their money back, and have no assurance that they will one day get them back.
To date, there are not many methods to store (or secure) your cryptocurrencies: you either have to go through centralized platforms, or protect your cryptocurrencies yourself (on a physical wallet).
Store on a platform: easy access, but greater risk
The first option is to do as with a traditional financial intermediary, ie rely on a platform that takes care of the management of its cryptocurrencies. This ranges from major cryptocurrency exchange platforms known as CEX (for “centralized exchange”) such as Binance, Coinbase, FTX or Kraken to decentralized financial (DeFi) lending platforms such as Celsius, BlockFi, Finblox…
“This is the closest method to the habits you can have with your usual banking partner: you connect with a password to your online account and you manage your money through this trusted third party,” explains BFM Crypto Alexandre Stachchenko , co-founder of Blockchain Partner and director of blockchain and cryptos at KPMG.
The advantage of CEX remains above all the convenience, both access and use for services, such as buying and selling.
“However, the price to be paid depends on this trusted third party: As with traditional finance, if this trusted third party goes bankrupt or decides to suspend access to your money, it can. But unlike traditional finance, this one The world is now less controlled and the possibilities to resort to these sometimes arbitrary methods are limited, so it is a risk that we must be aware of,” stresses Alexandre Stachchenko.
Indeed, not all platforms are created equal.
“If you choose to trust a centralized player for your long-term savings or to generate returns, you need to be extremely vigilant about the soundness of this player. Most are young, poorly capitalized and their strategies” Investment companies are completely opaque If they are able to dangle outrageous returns, which can work in a bull market, beware of the current turnaround that could expose their weakness and lead to bankruptcies,” the latter underlines.
The attraction of the French remains limited
For the French, the remedies to recover their assets in the event of freeze announcements by certain companies are even limited.
“These platforms are rarely headquartered or have an office in France. This is more a matter of trust than a matter of legal capacity to make a withdrawal: a withdrawal freeze by a major platform would be tantamount to recognizing insolvency, which would be disastrous for her,” explains BFM Crypto Victor Charpiat, a former crypto lawyer who launched a fintech in this sector.
Likewise, all companies have taken care to protect themselves from user claims, as explained in an article from the Figaro† The Celsius company has thus “protected itself from the obligation to repay its customers in the event of bankruptcy or lack of liquidity”. Similarly, major platforms such as Coinbase and Binance “highlight the risks associated with investing in cryptocurrencies and protect themselves from any recourse in the event of a technical breakdown in their services, hacking, a sudden drop in the price of the assets they host, or of insolvency” , reports Le Figaro†
However, can we expect the same scenario as Celsius for major centralized trading platforms? Despite some alarming signals from Coinbase (with its numerous layoffs), it remains unlikely they will experience a situation comparable to Celsius or Finblox.
“It seems highly unlikely to me because a withdrawal freeze would be interpreted as the beginning of an insolvency, causing all customers to panic about certain products. On the other hand, traders and institutions have an essential need to use these platforms because that’s where the liquidity is,” says Victor Charpiat.
Hardware wallets, better solution but complexity of the model
The other method of securing or storing your cryptocurrencies is very different from centralized platforms. A user can therefore choose to store his cryptocurrencies on a so-called “cold wallet”.
“It’s about securing your cryptos yourself, in short, being your own bank. In concrete terms, this means that you only have access to your cryptos, continues Alexandre Stachchenko.
The current context of distrust of certain platforms therefore seems favorable for players who offer this type of service, such as the French unicorn Ledger or even Trezor. In this type of method, a user’s private key remains in the hardware wallet (a physical USB key) without being visible on the network.
A Ledger member confirmed to BFM Crypto that the sales curve for so-called “nano” wallets spiked a few days ago. To date, Ledger has sold more than 5 million nano-wallets.
The advantage of this type of method remains independence and uninsurability.
“No one can take control of your money. But the price you pay is just a bigger responsibility: you are responsible for the safety of your money and there are no second chances. If your key, if you lose it, etc. your money is permanently lost and no one can give it back to you,” said the latter.
Nevertheless, nano wallet holders can face many phishing scams, which also require great vigilance. “The crooks will ask you to download a fake Ledger Live application, which will trigger a transaction on your Nano. You should absolutely decline this transaction,” the company warns.
Diversify and be well-informed
The options for storing or securing your cryptocurrencies each have advantages and disadvantages.
“The best thing, therefore, as often, is to diversify and be well-informed. The money we need on a daily basis, or with which we want to operate regularly, can be on a third party platform for convenience. If we have a slightly larger legacy in crypto, it is necessary to consider holding this money yourself and implementing good security practices,” stresses Alexandre Stachchenko.
However, in the current situation with Celsius, users are faced with a third party that has unilaterally decided to block their funds in order to maintain its own solvency. “To avoid situations like this, it’s best to diversify your crypto repositories (platforms and hardware),” he adds.