How to keep our digital assets safe

By Andy Chen

As the customer service manager of EliteX exchange, I know that asset security is very important. In the context of the Fcoin incident, I would like to talk with you about how to ensure the security of our digital assets.

On February 17, 2020, Zhangjian, the founder of FCoin, announced that FCoin is facing a crisis of difficulty in paying users’ funds and will be closed indefinitely. According to sources, FCoin expects the uncashed amount to be between 7,000 and 13,000 BTC.

Why is there such an event as FCoin?

The FCoin incident, in fact, was not caused by hackers stealing money. Its model of trading and mining was problematic from the start, and FCoin may not have invested enough in technology. A lack of technology has left FCoin with an uneven balance sheet. As a result, he can no longer cope with the withdrawal of everyone, can only close.

How can we more effectively secure our digital assets?

From the perspective of exchanges, in the first place, the major exchanges or digital currency trading platform should publicize the assets to users, in order to better win the trust of users. In other words, they need to keep their balance sheets in order to make sure they have more assets than liabilities and fully review their risk controls and let the market monitor them in a transparent way.

In the next place, exchanges can introduce third-party hosting services to improve their digital asset storage security and anti-risk capabilities. Because the exchange’s assets are held in custody by third parties, and it has a series of warm, hot and cold wallet mechanisms and internal and external risk control systems, it can bring in external third parties to audit these assets on a regular basis; And because it is the service of a third party rather than your own, there is little chance of your own doing evil. Such insurance can also be purchased through escrow, which provides some insurance services for digital currencies. In the case of extreme accidents, it can also improve the solvency of users due to the support of such real-world insurance.

Third, a centralised exchange can be transformed into a decentralised exchange, which is safer than a centralised exchange because assets are always under the control of the user’s wallet, but with higher transaction fees.

From the perspective of users, firs of all, users need to build their own asset management system.Taking a typical blockchain currency holder as an example, we suggest users to have such a wallet system:The low-frequency assets of more than 70% of the user’s assets are stored in the cold wallet, or even the offline wallet that is completely offline; Put 20% of the assets as medium frequency assets in their own private key of the HD wallet and some hardware wallet for easy use; Around 10% of assets can be stored in some cloud wallets and exchanges as a high-frequency everyday asset. Through such a triple hot, mild and cold wallet mechanism, it can basically satisfy the different demands of individual users in different situations.

Next in importance, users can put their assets into a head exchange like Huobi. The head exchange is strong in terms of technical strength and financial strength, and has high anti-risk capability, so the safety of users’ assets can be guaranteed naturally.

Last but not least, diversify and invest safely.Don’t put all your eggs in one basket.

This is a good time, you can find good investments, but it is also a bad time, because the lack of regulation, there will be invisible darkness.

Digital asset exchange & decentralised exchange built on the Lisk eco-system. Our official telegram: t.me/EliteX_official