Importance of Private Key Ownership — Cryptopia Case Study
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May 15, 2019 · 4 min read
“If you can’t view the private key of the address that holds your crypto, you do not own that crypto.” — ZelCore wallet gives users 100% custody over their assets.
Note: The Cryptopia bankruptcy/liquidation process is new and fluid, any strategy is possible at this time.
Maintain custody of your assets using the ZelCore multi-asset wallet
Cryptopia Shutters Exchange and Declares Bankruptcy — Quick Recap
Many crypto enthusiasts have heard that Cryptopia has shut down its exchange site and is working with Grant Thornton-New Zealand to liquidate asset holdings after declaring bankruptcy. Liquidation of assets typically has a tiered return schedule on who gets paid out first (see Investopedia’s article on liquidation preference):
- Creditors are first to receive their cut of assets, up to the total amount owed,
- Shareholders are next in line, and if there are enough assets to cover the terms in their agreements,
- Everybody else, including customer refunds, unpaid bills, etc.
So the looming question for most of the crypto space is “will Cryptopia users that held funds on a Cryptopia custodial wallet get their funds back?” That question cannot be answered now, and will likely take weeks/months as Grant Thornton investigates the Cryptopia books and comes up with a repayment plan for the above parties.
Ownership of Private Keys
Hopefully by now, a majority of crypto holders have heard the mantra “not your keys, not your crypto!”. If you haven’t, this means that exchange wallets are fully owned by the exchanges, and the users do not hold the private keys to their exchange deposit addresses, meaning they cannot access their crypto if an exchange disables withdrawals. Crypto holders should always take the added steps of storing assets on addresses they own, even if they lose a little convenience. The lowered risk is worth the time. And please, always back up your wallets and private keys!
The simple concept of storing crypto on addresses that a user controls has created a complex and lucrative facet in crypto, the idea of exchanging crypto without trusting a 3rd party for custody, e.g. atomic swaps, decentralized exchanges, etc., which deserves its own set of articles to discuss properly. Hopefully the issues faced by Cryptopia reignite larger discussions about the concept of users maintaining 100% custody over their assets.
ZelCore Platform — Asset Custody
ZelCore has been committed to the idea that users should maintain custody of all their assets, all the time. The account system is based on a user-selected username, password, and optional decentralized 2FA PIN, helping users gain quick access to their assets securely without having to memorize or look up 12-word pass phrases. No user login information is stored or transmitted off-device; ZelCore hashes the login credentials locally and grants access to the accounts generated from the username and password.
Holding full custody of assets can be inconvenient at times for active traders, as confirmation times can be high and seconds can matter during high market volatility. But for the average crypto holder, storage of assets on an exchange custodial wallet should not be the long-term solution. Use of multi-asset wallets like ZelCore provide the best of both worlds, convenience of easy access to over 140 assets & 19,000+ Ravencoin (RVN) assets while also maintaining 100% custody of said assets.
Cryptopia is not the first nor the last centralized exchange that will be put under the microscope as they shut down. Your crypto is being held by a custodian (the exchange) and can be considered their assets during a time of insolvency and liquidation. For all centralized exchange users, please take the time to understand what custody of assets really means, and weigh the options that fit best with your crypto strategies.
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Written by Zel Technologies, GmbH — 15 May 2019 — Rev. 1