This article is published by @jerryc#3190 (a Notable Trader and Trusted Member in LKS) and manually reviewed by @mrjackyliang#0001.
With the collapse of FTX due to misused customer funds, it’s more important than ever to learn how you can self-custody your crypto investment. The best practice for on-ramping fiat currency to crypto is to add funds to a centralized exchange and withdraw it to your on-chain wallet. Alternatively, there are web3 apps, like Argent and Juno Finance, that directly help you ramp fiat currency to on-chain (or better known as your transactions being seen by the public).
Regardless of the method for on-ramping funds, self-custody via an on-chain hardware wallet is the best, in my option – Standard choices include a Ledger or Trezor wallet. But beware, when purchasing one, please don’t choose a secondhand wallet because it has been known that their private keys have been leaked.
Well, what does this mean? If your private keys are leaked, it means at any point in time, someone can siphon your crypto away from you without you knowing. That’s like someone offering you a used checking account but the person that offered you that also has a written copy of the PIN code, thus gaining access to the full account.
For individuals that think this is too complicated, and still would prefer to custody most of their funds on centralized exchanges, there are several choices that are more trustworthy such as Coinbase or Kraken.
Much of what is currently uncertain is whether exchanges have held assets sufficient for customer withdrawals; while some exchange-held assets can be verified through the Nansen Portfolio website. However, this may be insufficient for verifying asset vs. liabilities. Some exchanges will verify that they hold your funds 1:1 via a proof of reserves Merkle tree or known as a hash tree, which ensures that individual customer assets were held at the time of proof of reserve audit.
For leveraged traders, current best practices would be to only keep your trading size on the exchange and the rest of the funds on-chain. While there are other exchanges that may seem to be more trustworthy, I would personally only trust the following exchanges (some which are affiliated with Low Key Stonks) due to the fact that the risk of exchanges having more liabilities than assets:
- Bybit
- BingX
- BitMEX
- Deribit