Why exchanges like FTX lose customer funds and how you can protect yourself - Crypto in Plain English - Episode 294 - by cryptohunt.it

Why exchanges like FTX lose customer funds and how you can protect yourself

Welcome to the Cryptohunt Jam, where we spend one minute a day to explain crypto. In plain English.

Just when you thought the drama around FTX was over, things keep getting worse. The collapsed exchange just announced that they lost between $500m and an entire $1bn of customer funds due to an alleged hack. Nobody really knows what’s going on, only one thing is for sure: People who had money in an FTX account will have a really hard time getting it back.

But how is that possible? Afterall crypto was supposed to be decentralized, meaning no single person or company can control where the money flows?

Well, the problem is that exchanges like FTX operate as so-called custodians of your funds, meaning they have the keys to it.

Think of it as parking your car: If you drive it into your own garage, and never give your car keys to anyone, chances of it being stolen are slim. But if you drive up to a restaurant, give the key to the valet, anything can happen. They might take it out for a spin, or someone might steal the key from them and then your car.

That’s how a lot of exchanges work. Because creating your own crypto wallet, and making sure you don’t lose the password is annoyingly complicated even to this day, many exchanges just manage all that for you. But that also means that when they go under, your money could go with them. And it does so more often than not actually.

There is a saying in crypto: “Not your keys, not your money”. So while creating wallets and protecting your keys is annoying, you probably guessed it: it’s the only way to keep your funds safe from bankruptcies, crooked players, and hackers. That's why we’ll walk you through it in the episodes this week, step by step, so you don’t become that gal or guy who lost their fortunes when the market peaks the next time.

Maybe some day there will be a better way. Until then, don’t worry. It’s actually not that complicated. See you tomorrow to get things started!

This podcast is produced by Cryptohunt.it the easiest place to learn crypto. Copywriting is done by Arndt Voges, Social Media is done by Brett Holleman, Design is done by Carmen Rincon and my name is Christian Byza, Co-Founder of Cryptohunt and I am your host of this daily show.

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.